Problem

Computing unit costs at different levels of production Scentsation Inc. budgeted for 12...

Computing unit costs at different levels of production

Scentsation Inc. budgeted for 12,000 bottles of perfume Oui during May. The unit cost of Oui was $20, consisting of direct materials, $7; direct labor, $8; and factory overhead, $5 (fixed, $2; variable, $3).

a. What would be the unit cost if 10,000 bottles were manufactured? (Hint: You must first determine the total fixed costs.)

b. What would be the unit cost if 20,000 bottles were manufactured?

c. Explain why a difference occurs in the unit costs.

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