Forever Quilting is a small company that makes quilting kits priced at $120. The costs of the materials that go into each kit total $45. It costs $5 in labor 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 $4,500 for the monthly salary of its owner. Forever Quilting's unit variable cost for its kits is
A)$5.
B)$45.
C)$50.
D)$120.
E)$170.

Question

Quizplus · Accepted Answer

The unit variable cost is the sum of the costs that vary with the level of production per unit. In this case, the costs that vary with the level of production per unit are the cost of materials and the cost of labor. The sum of these costs is $50 ($45 for materials + $5 for labor). The other costs, such as rent and insurance, heat and electricity, advertising, and the salary of the owner, are fixed costs and do not vary with the level of production per unit. Therefore, these costs do not factor into the unit variable cost calculation.

Forever Quilting Is a Small Company That Makes Quilting Kits