costs a Number of units to be produced b Management finds th

costs (a) Number of units to be produced (b) Management finds the variation in quarterly unit product costs to be confusing and difficult to work with It has been suggested that you have s about cost behavior from the first three quarters hold constant, what is the estimated unit product cost of the because the foxed because the variable

Solution

Solution: The fixed portion of the manufacturing overhead cost is causing the unit product costs to fluctuate. The unit product cost increases as the level of production decreases because fixed overhead is being spread over fewer units.

Explanation: Although fixed costs total remain the same, within the relevant range. But the fixed cost per unit falls as production increases, since the same fixed costs gets spread over more units