During the quarter, Iris Company sold 100,000 units at $5 per unit to break even. Iris had $150,000 in fixed costs. What was variable cost per unit for the quarter?

Question

Quizplus · Accepted Answer

To break even, the total revenue should equal total costs. 
Total cost = Fixed cost + Variable cost * Quantity
Since Iris broke even, the total revenue should be $500,000 ($5 per unit * 100,000 units).
Thus, 
$500,000 = $150,000 + Variable cost * 100,000
Variable cost per unit = ($500,000 - $150,000) / 100,000 = $3.50 per unit. 
Therefore, the answer is A.

During the Quarter, Iris Company Sold 100,000 Units at $5