Cadmium Silicon Transistor Coils: Average Variable Cost Analysis

Average Variable Cost for Cadmium Silicon Transistor Coils

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Question

Intelligent Semiconductor, a diversified technology company, is evaluating the sales of its cadmium silicon transistor coils, and has identified the following information:

Fixed production costs for these transistors are $800,000

Average sales price per unit is $505.50

Break-even quantity of 4,084 -

Which of the following best describes the average variable cost for this product?

Answers

Explanations

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A. B. C. D. E.

D

To calculate the break-even quantity for a product, use the following equation: {Fixed operating costs/[avg. sales price per unit - variable cost per unit]}. To determine the average variable cost of this product, we must rearrange the standard equation using algebra, in a manner such that the resulting equation resembles the following: {[$800,000/4,084] + X = $505.50}. This equation is further rearranged into the following: {$195.89 + X = $505.50}. Finally, the ending equation becomes:{X = $505.50 - $195.89}. Solving for X yields an average variable cost per unit of $309.61.

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