Gibson Company’s cost and production data for two recent months included the following:

Gibson Company’s cost and production data for two recent months included the following:

	March			April
Production (units)		800			1,000
Rent	$	2,000		$	2,000
Utilities	$	800		$	1,000

Required

1. Separately calculate the rental cost per unit and the utilities cost per unit for both March and April.
   
2. Identify which cost is variable and which is fixed.
   
   
   
   Explanation
   a.

   	March			April
   Units Produced (a)		800			1,000
   Total rent cost (b)	$	2,000		$	2,000
   Rent cost per unit (b ÷ a)	$	2.50		$	2.00
   Total utility cost (c)	$	800		$	1,000
   Utility cost per unit (c ÷ a)	$	1.00		$	1.00

   
   b.
   Since the total rent cost remains unchanged when the number of units produced changes, it is a fixed cost. Since the total utility cost changes in direct proportion with changes in the number of units, it is a variable cost.
   
   

Thanks