Simon Inc.currently produces 110,000 units at a cost of $440,000.The cost is variable.Next year Simon Inc.expects to produce 115,000 units.Simon's relevant range for production is 100,000 to 120,000 units.If 115,000 units are produced next year,what is the expected variable cost?
A) $420,000
B) $430,000
C) $440,000
D) $460,000

Question

Quizplus · Accepted Answer

Variable costs change in direct proportion to changes in production volume. Since the cost for 110,000 units is $440,000, the cost per unit is $440,000 / 110,000 = $4. To find the cost for 115,000 units, multiply the cost per unit by the new production volume: 115,000 units * $4/unit = $460,000.

Simon IncCurrently Produces 110,000 Units at a Cost of $440,000