Question

A spirits manufacturer is considering two potential production investments: Option A costs an initial $2 billion and will involve variable costs (labor and material) of $5 per bottle of spirits. Option B costs an initial $4 billion and will involve variable costs (labor and material) of $3 per bottle of spirits. Assuming an annual capital charge equal to 10 percent of the initial costs, what is the average fixed cost at production level of 30,000,000 bottles per year for the Option A facility

Answer 1

$73.333

Step-by-step explanation:

10% of the initial 2 billion = 200000000

getting the information from the promblem we have that...

initial cost is 2 billion. Total fixed cost 2200000000.

in this way the average fixed cost is calculated with this formula

AFC= average fixed cost

AFC = 2200000000 / 30000000

AFC= $73.333 for the option A facility