Last month,when 10,000 units of a product were manufactured,the cost per unit was $60.At this level of activity,variable costs were 50% of total unit costs.If 10,500 units are manufactured next month and cost behaviour patterns remain unchanged,how will costs be affected?
A) Total variable costs will remain unchanged.
B) Fixed costs will increase in total.
C) Variable cost per unit will increase.
D) Total cost per unit will decrease.

Question

Quizplus · Accepted Answer

Since variable costs are 50% of the total cost at $60 per unit, the variable cost per unit is $30. Fixed costs do not change with the number of units produced. Therefore, producing more units (10,500 instead of 10,000) spreads the fixed costs over more units, decreasing the total cost per unit. Variable costs increase in total with more units produced, but the fixed cost contribution per unit decreases.

Last Month,when 10,000 Units of a Product Were Manufactured,the Cost