Question

Wu Company incurred 540,000 of fixed cost and $50,000 of variable cost when 4,000 units of product were made and sold. If the company's volume increases to 5,000 units, the total cost per unit will be Multiple Choice $18.00 O $20.00 $20 50

Answer 1

Answer -1	$20.50
Answer -2	$65.00
Answer -3	Decrease

Answer - 4

(a) - $5.00 (b) - $2.00

Answer - 1 Total Cost per unit = Total Cost Units = (102,500/5000) = $20.50 Working Notes: Calculation of variable cost per unit - Formula: Total Variable Cost Total Units $ Total Variable Cost Total Units 50,000.00 4000 Variable Cost per unit = (50.000 / 4000) S 12.50 Units Variable Cost Fixed Cost Total Cost S S S 4000 5000 50,000.00 $ 62,500.00 40,000.00 $ 40,000.00 90,000.00 $ 102,500.00

Answer - 2 Total Cost per unit = Total Cost Units = (240,500/3700) = $65.00 Working Notes: Calculation of variable cost per unit - Formula : Total Variable Cost Total Units $ Total Variable Cost Total Units 118,400.00 3200 Variable Cost per unit = (118.400/3200) $ 37.00 Units Variable Cost Fixed Cost Total Cost $ S S 3200 3700 118,400.00 $ 136,900.00 103,600.00 $ 103,600.00 222,000.00 $ 240,500.00

Answer - 3 Decrease If company volume get double, the total cost per unit will decrease as fixed cost will be allocated to higher number of units. Working Notes - Units Variable Cost Fixed Cost Total Cost 2600 5200 80,600.00 $ 161,200.00 68,200.00 $ 68,200.00 148,800.00 $229,400.00 S Cost Per unit 57.23 $ 44.12 As we can see when number of units get doubles the cost per unit get decreased.

Answer - 4 Units Variable Cost Fixed Cost Total Cost $ $ S 1500 3000 7,500.00 $ 15,000.00 6,000.00 $ 6,000.00 13,500.00 $ 21,000.00 Variable Cost Fixed Cost $ $ 5.00 $ 4.00 S 5.00 2.00 Working : Variable cost will remain same irrespective on number of units produced. Hence variable cost per unit will be : = (15000/3000) = $5.00 Fixed cost will decrease as the number of units produced increased. Hence fixed cost per unit will be : = (6000 / 3000) = $2.00