ACCA Applied Knowledge · Management Accounting · Cost accounting methods
A firm produces a product in batches. Set-up cost is $1,200 per batch and other costs are $6 per unit. If the batch size is increased from 200 units to 400 units, what is the change in the cost per unit?
Cost per unit falls by $3.00. At 200 units it is $12 (set-up $6 plus $6 other costs); at 400 units it is $9 (set-up $3 plus $6). The set-up cost per batch is spread over more units, reducing the unit cost.
- AA decrease of $3.00Correct
- BA decrease of $1.50
- CAn increase of $3.00
- DNo change, because variable cost per unit is constant
Explanation
At 200 units: 1,200/200 = $6 set-up per unit, plus $6 = $12. At 400 units: 1,200/400 = $3, plus $6 = $9. The cost per unit falls by $3 because the fixed batch set-up is spread over more units. The 'no change' option ignores the set-up cost.
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