Question

The following costs were for Optimal View Inc., a contact lens manufacturer Variable Output Fixed Cost 4,900 4,900 Cost Total Costs S 14,000 $18,900 280 330 16,000 18,000 20,000 20,900 22,900 24,900 380 4,900 4,900 430 At an output level of 500 lenses, per unit total cost is projected to be: Multiple Choice $53.56. $55.40 O$44.45 $61.67 $50.85

Answer 1

Solution:
	Answer is 2nd option $55.40
Working Notes:
	the given total variable cost contain some fixed cost component which increases with increases with range of every 50 units
	So we will calculate variable cost per unit of this type of case
	Variable cost per unit = ( Change in total cost )/ Change in units
	Variable cost per unit = ( Total cost at 430 units -total cost at 380 unit )/ ( 430 - 380)
	Variable cost per unit = (24900 -22900 )/ ( 430 - 380)
	Variable cost per unit =2000/50
	Variable cost per unit =$40 per units
	Total fixed cost at 430 units level
	= Total cost at 430 units - Variable cost per unit x 430 units
	= 24,900 - $40 x 430 units
	=24900 - 17200
	=7700
	Since 500 lenses is out of range of 430 + 50 units 480 units , hence it total cost can be only projected using total fixed cost at 430 units level
	And asked is also is per unit total cost to be projected
	total cost projected at 500 lenses level
	=variable cost per unit x no of units + the fixed cost at nearest range which is 430 units
	=$40 x 500 + 7,700
	=$20,000 + 7,700
	=27,700
	per unit total cost to be projected
	= Total projected cost at 500 lenses/ No of total units
	= 27,700/ 500
	= $55.40 per unit total cost to be projected
Please feel free to ask if anything about above solution in comment section of the question.