A wireless monitored process has fixed cost of $40,000 per year and variable cost of $30 per unit. An IoT-based process using “Internet of Things” technology has fixed costs of $80,000 per year. If the two processes break even at a production level of 4000 units per year, the variable cost of the IoT-based process is closest to: (choose one)

Question

(a) $10 per unit
(b) $20 per unit
(c) $30 per unit
(d) $40 per unit

Answer 1

Let VCIoT = variable cost of IoT-based process

40,000 + 30(4000) = 80,000 + VCIoT(4000)
160,000 – 80,000 = VCIoT(4000)
VCIoT = 20
Answer is (b) $20 per unit