Computing unit costs at different levels of production

Scentsation, Inc., budgeted for 12,000 bottles of perfume Oui

during the month of May. The unit cost of Oui was $20, consist-

ing of direct materials, $7; direct labor, $8; and factory overhead,

$5 (fixed, $2; variable, $3).

a. What would be the unit cost if 10,000 bottles were manufac-

tured? (Hint: You must first determine the total fixed costs.)

b. What would be the unit cost if 20,000 bottles were

manufactured?

c. Explain why a difference occurs in the unit costs.