Forever Quilting is a small company that makes quilting kits priced at $120.The costs of the materials that go into each kit are $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)$45.
B)$50.
C)$120.
D)$170.
E)$225.

Question

Quizplus · Accepted Answer

The unit variable cost is the sum of the variable costs associated with producing one quilting kit. In this case, the variable costs include the cost of materials ($45) and the cost of labor ($5), which adds up to $50. The other monthly expenses, such as rent, insurance, heat and electricity, advertising, and owner's salary, are fixed costs and do not vary with the level of production. Therefore, they are not included in the unit variable cost calculation.

Forever Quilting Is a Small Company That Makes Quilting Kits