Question

What is the approximate cost per unit in rupees, if the company produced and sold 1400 units in the year 2007?

• A. 104
• B. 107
• C. 110
• D. 115

Answer 1

The correct option is B 107

Looking at the values in the table, one can easily conclude that the costs which are directly proportional to the change in volume of production are 'material', 'labour' and 'operating cost of machines'. Rest of the costs are all fixed costs. If 'x' is the number of units produced in 2007 then the total cost of production would be
C=9600 (Fixed cost) + 100x(Variable cost)
Variable cost = 100x because as the number of units for 2006 is 1200 and variable cost for that is 120000 i.e. 100 times the number of units.
Total cost = 9600 + 100 $\times$ 1400 = 149600
Cost per unit $=\frac{149600}{1400}\approx 107$