A project has earnings before interest and taxes of $24,900, fixed costs of $48,700, a selling price of $16 a unit, and a sales quantity of 24,500 units per year. Annual depreciation is $14,600. What is the variable cost per unit?
A) $12.40
B) $12.50
C) $12.60
D) $12.70
E) $12.80

Question

Quizplus · Accepted Answer

The variable cost per unit can be calculated by first determining the total revenue, then subtracting the fixed costs, depreciation, and EBIT from the total revenue to find the total variable cost, and finally dividing the total variable cost by the number of units sold. Total revenue = Selling price * Sales quantity = $16 * 24,500 = $392,000. EBIT = Revenue - Fixed Costs - Depreciation - Total Variable Cost. Rearranging to find Total Variable Cost = Revenue - Fixed Costs - Depreciation - EBIT = $392,000 - $48,700 - $14,600 - $24,900 = $303,800. Variable cost per unit = Total Variable Cost / Sales quantity = $303,800 / 24,500 = $12.40.

A Project Has Earnings Before Interest and Taxes of $24,900