Cane Company manufactures two products called Alpha and Beta that sell for $180 and $145, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 118,000 units of each product. Its average cost per unit for each product at this level of activity is given below:
To calculate the average cost per unit for each product, we need the total cost and the total number of units produced.
For each product, the cost of raw materials per unit can be calculated by dividing the cost of the raw material by the number of units produced.
For Alpha:
Cost of raw material per unit = $6 / 118,000 units = $0.000051 per unit
For Beta:
Cost of raw material per unit = $6 / 118,000 units = $0.000051 per unit
The average cost per unit for each product can be calculated by adding the cost of raw materials per unit to the selling price per unit.
For Alpha:
Average cost per unit = $0.000051 per unit + $180 per unit = $180.000051 per unit
For Beta:
Average cost per unit = $0.000051 per unit + $145 per unit = $145.000051 per unit