Mark is trying to determine his firm's average cost per unit of production. He finds that the cost for all labor and materials is $80,000 and fixed overhead expenses are $40,000. If the company produces 20,000 items in the time period, the average cost is
A) $12.
B) $2.
C) $6.
D) $4.
E) $10.

Question

Quizplus · Accepted Answer

The total cost is the sum of variable and fixed costs. Variable costs are the costs that change with the level of production. Fixed costs remain constant regardless of the level of production. The formula for calculating average cost per unit is:

Total cost / Number of units produced

Total cost = Variable cost + Fixed cost
Variable cost = Cost of labor and materials = $80,000
Fixed cost = Overhead expenses = $40,000
Number of units produced = 20,000

Total cost = $80,000 + $40,000 = $120,000
Average cost per unit = $120,000 / 20,000 = $6

Therefore, the average cost per unit of production is $6. The correct answer is choice C.

Mark Is Trying to Determine His Firm's Average Cost Per