Kaya Inc. budgeted these amounts for the year:

Materials...............................2 leather strips @ $7.00

Labour.................................1.5 hr. @ $18.00

Variable overhead.....................1.5 hr. @ $1.20

Fixed overhead.......................$6,800

Required:

1. Prepare a flexible budget for 3,500, 4,000, and 4,500 units.

2. Calculate the unit cost at 3,500, 4,000, and 4,500 units.

What happens to unit cost as the number of units produced increases?