A project with a life of one year has earnings before interest and taxes of $5,750,fixed costs of $50,000,a selling price of $13 a unit,and a sales quantity of 11,500 units.Depreciation is $7,500.What is the variable cost per unit?
A)$6.75
B)$7.00
C)$7.25
D)$7.50
E)$7.75

Question

Quizplus · Accepted Answer

The variable cost per unit can be calculated by first determining the total revenue and then subtracting the fixed costs, depreciation, and earnings before interest and taxes (EBIT) from the total revenue to find the total variable cost. Finally, divide the total variable cost by the number of units to find the variable cost per unit.Total Revenue = Selling Price * Sales Quantity = $13 * 11,500 = $149,500Total Costs (excluding variable costs) = Fixed Costs + Depreciation + EBIT = $50,000 + $7,500 + $5,750 = $63,250Total Variable Costs = Total Revenue - Total Costs (excluding variable costs) = $149,500 - $63,250 = $86,250Variable Cost per Unit = Total Variable Costs / Sales Quantity = $86,250 / 11,500 = $7.50

A Project with a Life of One Year Has Earnings