The following income statements are provided for Li Company's last two years of operation: Assuming that cost behavior did not change over the two year period, what is the amount of the company's variable cost of goods sold per unit?
A) $12.00 per unit
B) $16.00 per unit
C) 22.00 per unit
D) none of these

Question

The following income statements are provided for Li Company's last two years of operation:  Assuming that cost behavior did not change over the two year period, what is the amount of the company's variable cost of goods sold per unit?
A) $12.00 per unit 
B) $16.00 per unit 
C) 22.00 per unit 
D) none of these

Quizplus · Accepted Answer

To find the amount of variable cost of goods sold per unit, we need to use the contribution margin formula: 
Contribution margin per unit = Selling price per unit - Variable cost per unit

Looking at the income statements, we can calculate the contribution margin for each year: 
Year 1: 
Contribution margin per unit = ($80 - $50) = $30

Year 2: 
Contribution margin per unit = ($95 - $65) = $30

Since the contribution margin is constant over the two years, we can use either year to find the variable cost per unit:

Variable cost per unit = Selling price per unit - Contribution margin per unit 
Variable cost per unit = $80 - $30 = $50 - $20 = $30

Therefore, the amount of the company's variable cost of goods sold per unit is $16.00 per unit.

The Following Income Statements Are Provided for Li Company's Last