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At an output of 10,000 units per year, a firm's total variable costs are $50,000 and its average fixed costs are $2. The total costs per year for the firm are.
(Total fixed costs + Total variable costs) / Total units produced. The cost per unit should decline as the number of units produced increases, primarily because the total fixed costs will be spread over a larger number of units (subject to the step costing issue noted above). Thus, the cost per unit is not constant.For example, ABC Company has total variable costs of $50,000 and total fixed costs of $30,000 in May, which it incurred while producing 10,000 widgets. The cost per unit is: ($30,000 Fixed costs + $50,000 variable costs) / 10,000 units = $8 cost per unit.In the following month, ABC produces 5,000 units at a variable cost of $25,000 and the same fixed cost of $30,000. The cost per unit is:($30,000 Fixed costs + $25,000 variable costs) / 5,000 units = $11/unit.$30,000 Fixed costs + $50,000 variable costs) / 10,000 units = $8 cost per unit. In the following month, ABC produces 5,000 units at a variable cost of $25,000 and the same fixed cost of $30,000. The cost per unit is: