A project has earnings before interest and taxes of $6,500, fixed costs of $40,000, a selling price of $12 a unit, and a sales quantity of 10,000 units. Depreciation is $8,500. What is the variable cost per unit?
A) $6.25
B) $6.50
C) $6.75
D) $7.00
E) $7.25

Question

Quizplus · Accepted Answer

To find the variable cost per unit, we first calculate the total revenue and total costs. Total revenue is $12 * 10,000 = $120,000. Total costs include fixed costs ($40,000), depreciation ($8,500), and variable costs. Earnings before interest and taxes (EBIT) is $6,500, so total costs are $120,000 - $6,500 = $113,500. Subtract fixed costs and depreciation from total costs to find total variable costs: $113,500 - $40,000 - $8,500 = $65,000. Divide total variable costs by the number of units to find the variable cost per unit: $65,000 / 10,000 = $6.50.

A Project Has Earnings Before Interest and Taxes of $6,500