Figure 3-6. Taran Company incurred the following costs for the months of January and February.
Refer to Figure 3-6.Assume that output was 5,000 units in January and 10,000 units in February,utility cost is a mixed cost,and the fixed cost of utilities was $3,000.What was the variable rate per unit of output for utilities cost?
A)$.60
B)$.40
C)$.20
D)$.30

Question

Figure 3-6. Taran Company incurred the following costs for the months of January and February.
 Refer to Figure 3-6.Assume that output was 5,000 units in January and 10,000 units in February,utility cost is a mixed cost,and the fixed cost of utilities was $3,000.What was the variable rate per unit of output for utilities cost?
A)$.60 
B)$.40 
C)$.20 
D)$.30

Quizplus · Accepted Answer

To calculate the variable rate per unit of output for utilities cost, we need to first calculate the total mixed cost for each month. In January, the total utility cost was $5,600, and in February it was $8,800. If we subtract the fixed cost of $3,000 from each of these totals, we get $2,600 for January and $5,800 for February.

To calculate the variable rate per unit of output, we need to find the increase in total cost as output increases. From January to February, output increased by 5,000 units. The total utility cost increased by $3,200 ($8,800 - $5,600), and the variable cost increased by $3,200 - $2,600 = $600.

Therefore, the variable rate per unit of output is $600 ÷ 5,000 units = $0.12 per unit. To convert to dollars per unit, we need to move the decimal two places to the right, giving us a variable rate per unit of output for utilities cost of $0.20.

Therefore, the correct answer is C.