Paolucci Corporation's relevant range of activity is 4,000 units to 8,000 units. When it produces and sells 6,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $ 6.45 Direct labor $ 3.30 Variable manufacturing overhead $ 1.25 Fixed manufacturing overhead $ 3.00 Fixed selling expense $ 1.05 Fixed administrative expense $ 0.60 Sales commissions $ 1.00 Variable administrative expense $ 0.50 If 5,000 units are sold, the variable cost per unit sold is closest to:

$12.50

Explanation:

Variable costs are those costs which changes with the change in activity driving the cost (Sales. production etc.). It can be direct or indirect costs.

Whereas fixed costs are those costs which remains constant and do not change with the change in activity.

All the following costs are variable costs

                                                          Average Cost per Unit

Direct materials                                   $6.45

Direct labor                                          $3.30

Variable manufacturing overhead     $1.25

Sales commissions                              $1.00

Variable administrative expense       $0.50

Total variable cost per unit                $12.50

All the following costs are fixed costs.

Fixed manufacturing overhead         $3.00

Fixed selling expense                        $1.05

Fixed administrative expense           $0.60

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