LM Enterprises produces a single part for sale. The part sells for $30 per unit. Fixed costs are $890,000 annually. Production and sales of 270,000 units annually results in profit before taxes of $1,000,000. What is the unit variable cost?

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1.54K viewsJanuary 21, 2017

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Darshita 6.14K January 21, 2017 0 Comments

LM Enterprises produces a single part for sale. The part sells for $30 per unit. Fixed costs are $890,000 annually. Production and sales of 270,000 units annually results in profit before taxes of $1,000,000.

What is the unit variable cost?

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score 0 · Answer 1 · 2017-01-21T05:33:02+00:00

Answer: variable cost =$ 23

a) when it is earned

Explanation to the answer:

Let variable cost per unit is x

Selling price ……………..=$30

Less:

variable cots…………….. =x

Contribution p.u……….. =$30-x

No. of units…………….. =270,000

Total contribution =270,000(30-x)

Now, profit before tax

=The total contribution -toal fixed cost

= profit before tax

270,000(30-x)-$890,000=$1,000,000

Solving this equation we will get

x=$ 23

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