a.
Variable
Fixed
Total
DM
$7.00
$7.00
DL
$8.00
$8.00
FOH
$3.00
$2.00
$5.00
$18.00
$2.00
$20.00
At 12,000 bottles of production, the fixed cost per unit is $2.
This means fixed costs are $24,000
The total cost equation would be as follows:
TC = $18(VC) + $24,000
Therefore, at 10,000 units of production, the total cost would be:
TC = $18(10,000) + $24,000
TC = $180,000 + $24,000
TC = $204,000
The unit cost at this level of production would be:
Total costs
$204,000
Units produced
10,000
Unit cost
$20.40
b.
The total cost equation would be as follows:
TC = $18(VC) + $24,000
Therefore, at 20,000 units of production, the total cost would be:
TC = $18(20,000) + $24,000
TC = $360,000 + $24,000
TC = $384,000
The unit cost at this level of production would be:
Total costs
$384,000
Units produced
20,000
Unit cost
$19.20
c.
Fixed costs do not vary in total with respect to volume, but the cost per unit changes as volume changes.
The more units produced, the lower the cost per unit.