Reference: 06-05
Maxwell Company has a total expense per unit of $2.00 at the 16,000 unit level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity.
-The best estimate of the variable cost per unit for Maxwell Company is
A)$1.79.
B)$1.95.
C)$2.00.
D)$0.56.

Question

Quizplus · Accepted Answer

The variable cost per unit can be estimated by observing the change in total cost per unit with a change in the level of activity. Since the total expense per unit decreases as the level of activity increases, this suggests that there is a fixed cost component in the total expense. The decrease in total expense per unit from $2.00 to $1.95, with an increase in units from 16,000 to 21,000, indicates that the variable cost per unit is less than the total expense per unit at both levels of activity. The best estimate for the variable cost per unit is the one that remains constant across different levels of activity, which is option A, $1.79, as it represents the portion of the cost that varies directly with the level of activity.

Reference: 06-05 Maxwell Company Has a Total Expense Per Unit of $2.00