E4-6 Computing unit costs at different levels of production French Fragrances, Ltd. budgeted for 12,000 bottles of perfume Belle during May. The unit cost of Belle was $20, consisting 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 manufactured? (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.