Herbie Inc., a firm manufacturing sandwich makers, has fixed costs of $250,000, variable costs of $20 per unit of output, and expected unit sales of 50,000 units. What is the unit cost of a sandwich maker manufactured by Herbie?
A) $15
B) $25
C) $30
D) $50
E) $75

Question

Quizplus · Accepted Answer

The total cost of producing 50,000 units can be calculated as follows:
Total cost = Fixed cost + (Variable cost per unit × Number of units)
Total cost = $250,000 + ($20 × 50,000)
Total cost = $1,250,000

The unit cost of a sandwich maker can be calculated as follows:
Unit cost = Total cost ÷ Number of units
Unit cost = $1,250,000 ÷ 50,000
Unit cost = $25

Therefore, the unit cost of a sandwich maker manufactured by Herbie is $25.