Geren 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) increase to $13
C) decrease to $14
D) decrease by $1

Question

Quizplus · Accepted Answer

When production decreases, the fixed costs are spread over fewer units, increasing the cost per unit. The fixed cost per unit at 50,000 units is $4 ($200,000/50,000), and at 40,000 units, it is $5 ($200,000/40,000), so the cost per unit increases by $1.

Geren Company Produces and Sells a Product That Has Variable