Question

A plumbing supply company has fixed costs of $9,000 per month and average variable costs of $9.30 per unit manufactured. The company has $90,000 available to cover the monthly costs. How many units can the company manufacture? (Fixed costs are those that occur regardless of the level of production. Variable costs depend on the level of production. Your answer should be in terms of whole units produced.)

Answer 1

8710 units

Explanation:

Step 1: Write all the data

Fixed cost: $9000

Average variable cost: 9.3 per unit

Total cost: 90,000

Total units: x

Step 2: Find the total variable cost

Average variable cost is per unit so it has to be multiplied by the number of units to find the total variable cost.

Total variable cost = average variable cost per unit x number of units

Total variable cost = 9.3x

Step 3: Make the formula for finding x

Total cost = total fixed cost + total variable cost

90,000 = 9000 + 9.3x

81000 = 9.3x

x = 8709.67

Rounded off to 8710 units

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