A company that produces and sells a single product has provided the following volume and average cost data for two accounting periods:

Level of activity (units) ------------------------ 1000 2000

Direct Materials --------------------------------- 4$ 4$

Direct Labor -------------------------------- 3$ 3$

Manufacturing overhead ----------------------- $3.50 $2.50

General, selling, administrative expenses ---- $1.00 $0.50

The best estimates of the total fixed cost and variable cost per unit are closest to: 1) $2,000 fixed; $1.50 variable 2) $2,000 fixed; $7.00 variable 3) $3,000 fixed; $7.00 variable 4) $3,000 fixed; $8.50 variable Well answer is 4) according to the program. (It's a program from CD, not a textbook). I just don't know how they got 4) as answer.

Well, I know Direct Material, Direct Labor, Manufacturing overhead is part of variable costs according to Chapter2. so for 1000 units, total variable cost per unit is 4+3+3.5= 10.5 I think.. I also think administrative expense is fixed cost if it has to do with rental administrative expenses. So in case of 1000 units, it's 1000x1$= 1000. I don't know how 3000$ is the answer. I am really confused.