Noel Stewart bought a machine two years ago for £500. He must now replace the old machine by buying a new model 206 for £700 or a used model 204 for £650. Noel has decided to buy model 204.
Noel Stewart has estimated that the total fixed costs for his department are £10,000. He also estimated that his variable cost per unit is £10.
Noel Stewart bought some materials 2 years ago for £300. These materials have simply been left in stock as they were not needed. A new customer offers to buy a product that uses these materials. The conversion cost is £500 and the customer has offered to pay £650 for the product. Noel decides to accept the order.
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If Noel produced 100 units his fixed cost per unit would be:
A)£10,000.
B)£100.
C)£1,000.
D)£0.

Question

Quizplus · Accepted Answer

Fixed costs are total costs that do not change with the level of output. To find the fixed cost per unit, divide the total fixed costs (£10,000) by the number of units produced (100 units), which equals £100 per unit.

Noel Stewart Bought a Machine Two Years Ago for £500