Mark is trying to determine his firm's average cost per unit of production. He finds that the cost for all labor and materials is $80,000 and fixed overhead expenses are $40,000. If the company produces 20,000 items in the time period, the average cost is_____.
(80,000 + 40,000) / 20,000 = ?
1. Mark is trying to determine his firm's average cost per unit of production. He finds that the cost for all labor and materials is $80,000 and fixed overhead expenses are $40,000. If the company produces 20,000 items in the time period, the average cost is __________.
$12
$6
$2
$4
To determine the average cost per unit of production, you need to divide the total cost by the number of units produced. In this case, Mark has the total cost for all labor and materials, which is $80,000, and the fixed overhead expenses, which is $40,000. Since these two costs contribute to the total cost, we can add them together to get the total cost.
Total Cost = Labor and Material Cost + Fixed Overhead Expenses
Total Cost = $80,000 + $40,000
Total Cost = $120,000
Mark also has the information about the number of items produced, which is 20,000. To find the average cost per unit, we will divide the total cost by the number of units produced.
Average Cost per Unit = Total Cost / Number of Units Produced
Average Cost per Unit = $120,000 / 20,000
Average Cost per Unit = $6
Therefore, the average cost per unit of production for Mark's firm is $6.