Explore BrainMass

Explore BrainMass

    Why do companies account for fixed costs on a per unit basis

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Applying fixed costs to products seems to cause all kind of problems. Why do companies continue to use accounting systems that assign fixed costs to products on a per unit basis?

    © BrainMass Inc. brainmass.com December 16, 2022, 4:14 am ad1c9bdddf

    Solution Preview

    There are several reasons to allocate fixed costs to products on a per unit basis:

    1. To help calculate the selling price of each unit. Using a simple example of rent as a fixed cost, it is important to know that the price of each unit will contribute enough for the company to be able to pay the rent. Let's say the factory rent is $10,000 per month, and the company normally produces 10,000 units per month. That means that the selling price of a single unit must include enough gross ...

    Solution Summary

    The 331 word solution gives three main reasons why companies allocate fixed costs on a unit basis, and then provides some consequences or reasons to work through the process.