Ships Ahoy is a small company that makes model sailboat kits priced at $120. The costs of the materials that go into each kit are $45. It costs $5 in labour to assemble a kit. The company has monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and $3,500 for the monthly salary of its owner. Ships Ahoy's unit variable cost for its kits is:
A)$50.
B)$45.
C)$170.
D)$120.

Question

Quizplus · Accepted Answer

The unit variable cost includes the costs that vary with the production and sale of each kit. In this case, the variable costs are the materials cost ($45) and the labor cost ($5) for a total of $50. The monthly fixed costs (rent, insurance, heat and electricity, advertising, and owner salary) do not vary with the production and sale of each kit, so they are not included in the unit variable cost calculation.

Ships Ahoy Is a Small Company That Makes Model Sailboat