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) $4.00
B) $0.96
C) $0.40
D) $3.20

Question

Quizplus · Accepted Answer

First, we can use the information given to find the variable cost per unit at the production level of 125,000 units:

Total Variable Cost = Total Cost - Total Fixed Cost
Total Variable Cost = $600,000 - $480,000
Total Variable Cost = $120,000

Variable Cost per Unit = Total Variable Cost / Number of Units
Variable Cost per Unit = $120,000 / 125,000 units
Variable Cost per Unit = $0.96

Next, we can use the high production level of 300,000 units to find the variable cost per unit:

Total Variable Cost = Total Cost - Total Fixed Cost
Total Fixed Cost = $480,000
Total Cost = $600,000 (given)
Total Variable Cost = $600,000 - $480,000
Total Variable Cost = $120,000

Variable Cost per Unit = Total Variable Cost / Number of Units
Variable Cost per Unit = $120,000 / 300,000 units
Variable Cost per Unit = $0.40

Therefore, the variable cost per unit at a production level of 300,000 units is $0.40, and the best choice is B.

Pedro Company Has Total Fixed Costs of $480,000