Fixed versus variable cost behavior
Lovvern Trophies makes and sells trophies it distributes to little league ballplayers. The company normally produces and sells between 8,000 and 14,000 trophies per year. The following cost data apply to various activity levels.
Number of Trophies | 8,000 | 10,000 | 12,000 | 14,000 |
Total costs incurred |
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Fixed | $42,000 |
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Variable | 42,000 |
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Total costs | $84,000 |
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Cost per unit |
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Fixed | $ 5.25 |
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Variable | 5.25 |
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Total cost per trophy | $10.50 |
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Required
a. Complete the preceding table by filling in the missing amounts for the levels of activity shown in the first row of the table. Round all cost per unit figures to the nearest whole penny.
b. Explain why the total cost per trophy decreases as the number of trophies increases.
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