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A factory currently manufactures and sells 800 boats per year. Each boat costs $5,000 to produce. $4,000 of the per-boat costs are for materials and other variable costs, while the per-boat fixed costs (incurred on yearly rent, administrative, and other fixed costs) are $1,000. If boat orders increase to 1000 boats per year, how do per-unit costs change?

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Answer:

Total unitary cost= $4,800

Explanation:

Giving the following information:

Actual units= 800

Total fixed costs= 1,000*800= 800,000

UNitary variable cost= $4,000

Units increase= 200

On unitary bases, variable costs remain constant. On the contrary, fixed costs vary at a unitary level. Now, the same amount of costs is divided by a larger number of units.

Unitary fixed overhead= 800,000/1,000= $800

Total unitary cost= 4,000  + 800= $4,800

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