Which measure can be calculated by dividing total production costs by the quantity produced, or by adding together average fixed costs and average variable costs per unit?

Which measure can be calculated by dividing total production costs by the quantity produced, or by adding together average fixed costs and average variable costs per unit?

• A. Average Revenue
• B. Contribution
• C. Average Cost
• D. Profit Center

Answer: (C)

Average cost per unit is being tested. This measure tells you, on average, how much each unit costs when you produce a certain quantity. It’s calculated by dividing total production costs by the quantity produced. Since total cost equals fixed costs plus variable costs, per unit this becomes fixed cost per unit plus variable cost per unit, which is why average cost can also be seen as the sum of average fixed cost per unit and average variable cost per unit. This concept is key for understanding cost efficiency, pricing, and break-even analysis. The other terms describe different ideas: average revenue is price per unit, not cost; contribution per unit is price minus variable cost per unit; and a profit center is a unit used for performance measurement, not a per-unit cost measure.

Average cost per unit is being tested. This measure tells you, on average, how much each unit costs when you produce a certain quantity. It’s calculated by dividing total production costs by the quantity produced. Since total cost equals fixed costs plus variable costs, per unit this becomes fixed cost per unit plus variable cost per unit, which is why average cost can also be seen as the sum of average fixed cost per unit and average variable cost per unit. This concept is key for understanding cost efficiency, pricing, and break-even analysis. The other terms describe different ideas: average revenue is price per unit, not cost; contribution per unit is price minus variable cost per unit; and a profit center is a unit used for performance measurement, not a per-unit cost measure.