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Fixed manufacturing costs are $150,000 and 20,000 units are produced. What is the fixed manufacturing cost per unit?
A$7.50 per unit
B$10.00 per unit
C$15.00 per unit
D$12.50 per unit
Answer & Solution
Correct answer: A. $7.50 per unit
1. Fixed cost per unit divides total fixed factory overhead by units produced, never by units sold.
2. $150,000 divided by 20,000 units gives $7.50 per unit.
3. At 15,000 units produced the rate would be $10, and at 10,000 units it would be $15.
4. Dividing by the 15,000 units sold rather than the 20,000 produced is what wrongly yields $10.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.5 Analysis of Variable and Absorption Costing_
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