Question

Estimate unit variable costs. Production volume was 10 units. fire insurance $100 depreciation $240 rent $200 assembly workers' wages $500 production supervisor's salary $120 direct materials $300 DOVE A. $30 per unit B. $50 per unit C. $80 per unit D. $104 per unit E. not enough information—it depends on whether the relevant range is fixed or variable

Answer 1

Variable costs are the costs that changes with change in units of production. Variable costs can increase or decrease as you produce more or less products.Unlike fixed costs they are not constant but may vary with volume of production.

*Fire insurance is fixed costs. It is a direct costs related to factory and will not be affected by actual units of output. even when there is no production factory insurance expense will be incurred.

*Depreciation is fixed expense. it is not affected by increase or decrease in volume of output.

*Rent is fixed expense.Rent of factory or office will be incurred even if the production is shut down.

*Assembly worker wages are direct labor and variable in nature. Workers are paid as per the volume of production.

*Supervisor's salary is fixed cost. They do not vary with volume of production.

*Direct material is variable cost. materials are used as per the volume of production. They are not fixed and will vary as per quantity of production.

As per above explanation direct material and assembly worker's wages are variable in nature.

So variable cost

(Direct material+assembly worker's wages)/number of units

=($500+$300)/10

=$80 per unit

Thus,variable cost per unit is $80