Question

An apparel manufacturing plant has estimated the variable cost to be $4.20 per unit. Fixed costs are $1,300,000 per year. Forty percent of its business is with one preferred customer and the customer is charged at cost. The remaining 60% of the business is with several different customers who are charged $20 per unit. If 200,000 total units are sold in a year, compute the unit cost per item.

Answer 1

Answer:

$10.7

Explanation:

Variable cost ($4.2 × 200,000)

$840,000

Fixed cost

$1,300,000

Total cost

= Fixed cost + variable cost

= $1,300,000 + $840,000

= $2,140,000

Therefore,

Unit cost per item

= Total cost / Total units sold

= $2,140,000 / 200,000

= $10.7