I cannot understand what is happening with the costs in our Quebec plant,” sighe

Question

I cannot understand what is happening with the costs in our Quebec plant,” sighed plant manager, Pierre Jardei. “Last quarter our unit costs were $10.50 per unit, but this quarter they jumped to $12.00 per unit.

The only thing that changed was our production volume, but going from making 50,000 to making only 40,000 units should have lowered our costs, because we used less material and hourly labor. Our rent didn’t change, so I don’t know what is going on here.”

Required: Assist Mr. Jardei by finding:

a. The variable costs per unit (materials and hour labor); and

b. The quarterly fixed costs (rent and his salary)

Explanation / Answer

Total costs at 50000 volume = 50000*10.5= 525000 Total costs at 40000 volume = 40000*12= 480000 a Variable costs per unit = (525000-480000)/(50000-40000)= 4.5 b Quarterly fixed costs=525000-(50000*4.5)= 300000

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