February 23, 2017

Homework Help: Marketing

Posted by Charles on Wednesday, December 9, 2009 at 3:15pm.

Explain why fixed and variable costs per unit decline as sales volume increases. Suppose a company had a variable cost/unit of $20 at a cumulative volume of 20,000 units. What would be their approximate variable cost per unit when they had produced 40,000 units?

For example:

Fixed Cost = $800,000
Unit Volume = 20,000

$800,000/20,000 = $40 Total Fixed Cost per Unit

Compared to…
Fixed Cost = $800,000
Unit Volume = 40,000

$800,000/40,000 = $20 Total Fixed Cost per Unit

Cost is reduced by half, but I’m not sure how to really explain this. Would I just say “the greater the unit volume the lower the cost, since fixed cost is divided by the unit volume?”

As for variable cost I’m not sure how to explain how it is reduced as sales volume is increased. Help please! Thanks!

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