Yang Manufacturing makes a product called Yin. The relevant range of operations is between 2500 units and 10 000 units of Yin per month. Per unit costs at two activity levels are as follows: 5000 units at $17.00 per unit; 7500 units at $13.00 per unit. Determine their total cost if Yang produces 10 000 units.
A) $130 000
B) $125 000
C) $110 000
D) $100 000

Question

Quizplus · Accepted Answer

The cost per unit decreases as production increases, indicating the presence of fixed costs. The total cost at 5000 units is $85,000 (5000 units * $17/unit) and at 7500 units is $97,500 (7500 units * $13/unit). The variable cost per unit is $4 (difference in total cost / difference in units = ($97,500 - $85,000) / (7500 - 5000)). The fixed cost is $65,000 (total cost at 5000 units - variable cost per unit * 5000 units). For 10,000 units, the total cost is $110,000 (fixed cost + variable cost per unit * 10,000 units).

Yang Manufacturing Makes a Product Called Yin