Pedro Company has total fixed costs of $480,000. Total fixed and variable costs are $600,000 at a production level of 125,000 units.
-At Pedro Company the variable cost per unit at 300,000 units is
A) the same as at 150,000 units.
B) greater than at 150,000 units.
C) less than at 150,000 units.
D) dependent upon fixed costs per unit.

Question

Quizplus · Accepted Answer

Total fixed costs remain the same regardless of the production level. The variable cost per unit is calculated as follows:

Variable cost per unit = (Total fixed and variable costs - Total fixed costs) / Number of units produced

At a production level of 125,000 units, the variable cost per unit is:

Variable cost per unit = ($600,000 - $480,000) / 125,000 = $0.96

Since the fixed costs remain the same, the variable cost per unit at 300,000 units will be the same as at 150,000 units, which is $0.96. Therefore, the answer is A.

Pedro Company Has Total Fixed Costs of $480,000