A business incurs the following costs per unit: Labor $125/unit; Materials $45/unit and rent $250,000/month. If the firm produces 1,000,000 units a month, the total variable costs equal

a. $125Million

b. $45Million

c. $1Million

d. $170Million

The correct answer is D

Explanation:

The variable cost for the following is computed as:

Total variable cost = Produced units * Labor per unit + Produced units * Materials per unit

where

Produced units is 1,000,000

Labor per unit is $125 per unit

Materials per units is $45 per unit

Putting the values above:

Total variable cost = 1,000,000 * $125 + 1,000,000 * $45

Total variable cost = 125,00,000 + 45,000,000

Total variable cost = $170,000,000 or 170 million

Note: Rent is not the variable cost as rent is the fixed cost so will not involved above.