Average unit cost at 80% capacity Steps:

• Determine machines needed: 8000 units ÷ 1000 units/machine = 8 machines.
• Compute machinery and fixed costs: 8 × $700 +$4800 = $10400.
• Compute variable costs: 8000 × $2 =$16000.
• Unit cost: ($10400 +$16000) ÷ 8000 = $3.30. Why D is correct:
• Matches total actual costs (fixed rent plus hired machines plus variables) divided by produced units. Why the others are wrong:
• A: Allocates all fixed costs over full 10,000-unit capacity, yielding $3.18.
• B: Miscalculates fixed costs by prorating rent over wrong volume (e.g., 9,000 units).
• C: Errors in adding machinery costs or dividing by incorrect production level. Final answer: D