A company incurs a total cost of $120,000 to produce 10,000 units. If fixed cost

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Question: A company incurs a total cost of $120,000 to produce 10,000 units. If fixed costs are $40,000, what is the marginal cost per unit?

Options:

Correct Answer: $12

Solution:

Marginal cost = (Total cost - Fixed costs) / Number of units = ($120,000 - $40,000) / 10,000 = $8

A company incurs a total cost of $120,000 to produce 10,000 units. If fixed costs are $40,000, what is the marginal cost per unit?

A company incurs a total cost of $120,000 to produce 10,000 units. If fixed costs are $40,000, what is the marginal cost per unit?

Step 1: Identify the total cost, which is $120,000.
Step 2: Identify the fixed costs, which are $40,000.
Step 3: Calculate the variable costs by subtracting fixed costs from total costs: $120,000 - $40,000.
Step 4: Perform the subtraction: $120,000 - $40,000 = $80,000.
Step 5: Identify the number of units produced, which is 10,000.
Step 6: Calculate the marginal cost per unit by dividing the variable costs by the number of units: $80,000 / 10,000.
Step 7: Perform the division: $80,000 / 10,000 = $8.

Marginal Cost Calculation – Understanding how to calculate marginal cost by subtracting fixed costs from total costs and dividing by the number of units produced.
Fixed vs. Variable Costs – Differentiating between fixed costs (which do not change with production volume) and variable costs (which do).