Question

Calculate the variable costs per unit within the relevant range.

Blossom Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as shown below. Output Direct Rent in Units Expense Materials $5,985 $4,788 1,000 2,000 5,985 6,900 9,576 6,900 3,000 4,000 9,576 9,200 9,576 5,000 11,500 6,000 9,576 13,800 9,576 7,000 16,100 8,000 18,400 9,576 9,000 11,970 35,072 10,000 41,895 11,970 11,000 11,970 52,668

Answer 1

Summary:

Variable rent expense per unit = $0.599

Variable direct material per unit = $4.788

Total variable costs per unit = $5.387 [$0.599 + $4.788]

Workings:

Using High-Low Method: Particulars High Low Difference Ouput in units Rent Exp. 11,000 $11,970 1,000 $5,985 10,000 $5,985 (11000 - 1000) ($11970 - $5985) Ouput in units 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 Rent Exp. $5,985 $5,985 $9,576 $9,576 $9,576 $9,576 $9,576 $9,576 $11,970 $11,970 $11,970 D. Material $4,788 $6,900 $6,900 $9,200 $11,500 $13,800 $16,100 $18,400 $35,072 $41,895 $52,668 Variable Rent Expense / Unit $0.599 (= Difference in units / Difference in rent exp. = $5985 / 10000 = 0.599) Using High-Low Method: Particulars High Low Difference Ouput in units D. Material 11,000 $52,668 1,000 $4,788 10,000 $47,880 (11000 - 1000) ($52668 - $4788) Variable D. Material / Unit $4.788 (= Difference in units / Difference in D. Material = $47880 / 10000 = 4.788)