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21 June, 09:05

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

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Answers (1)
  1. 21 June, 09:15
    0
    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.
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