Leinart Company produces and sells a product that has variable costs of $9 per unit and fixed costs of $200,000 per year. If production decreases from 50,000 to 40,000 units, the cost per unit will _____.
A)increase by $1
B)decrease by $1
C)increase to $13
D)decrease to $14

Question

Quizplus · Accepted Answer

Fixed costs remain constant regardless of the level of production, so when production decreases, the fixed cost per unit increases because the same amount of fixed costs is spread over fewer units. The variable cost per unit remains the same ($9) since it does not depend on the volume of production. To calculate the change in cost per unit due to a decrease in production, we need to consider how the fixed cost per unit changes.Initially, for 50,000 units, the fixed cost per unit is $200,000 / 50,000 = $4. When production decreases to 40,000 units, the fixed cost per unit becomes $200,000 / 40,000 = $5. This is an increase of $1 in the fixed cost per unit due to the decrease in production volume. The total cost per unit (fixed plus variable) increases by $1 because the variable cost per unit remains constant at $9, and only the fixed cost per unit increases.

Leinart Company Produces and Sells a Product That Has Variable