If the fixed cost to produce an item is $500, labor is $2.00 per unit and materials are $2.50 per unit; then the unit cost for an order of 1,000 would be:
A) $6.50
B) $5,000
C) $5.00
D) $504.50

Question

Quizplus · Accepted Answer

To calculate the unit cost for an order of 1,000 units, we need to add the variable cost per unit (labor + materials) to the fixed cost and divide the sum by the number of units produced.

Variable cost per unit = $2.00 + $2.50 = $4.50

Total cost for 1,000 units = $500 + ($4.50 x 1000) = $5,000

Unit cost = Total cost / Number of units = $5,000 / 1,000 units = $5.00 per unit

If the Fixed Cost to Produce an Item Is $500