Question

Branson Mailbox produces decorative mailboxes. The​ company's average cost per unit is $ 22.43 when it produces 1 comma 200 mailboxes. Requirements 1. What is the total cost of producing 1 comma 200 ​mailboxes? 2. If $ 18 comma 516 of the total costs are​ fixed, what is the variable cost of producing each​ mailbox? 3. Write Branson Mailbox​'s cost equation. 4. If the plant manager uses the average cost per unit to predict total​ costs, what would the forecast be for 1 comma 600 ​mailboxes? 5. If the plant manager uses the cost equation to predict total​ costs, what would the forecast be for 1 comma 600 ​mailboxes? 6. What is the dollar difference between your answers to questions 4 and​ 5? Which approach to forecasting costs is​ appropriate? Why?

Answer 1

1) $26,916

2) $7

3) Cost = $7 × Number of units + $18,516

4) $35,888

5) $29,716

6) $6,172

Step-by-step explanation:

Given:

The​ company's average cost per unit = $22.43

Number of units produced = 1,200

1) Total cost of producing 1,200 mailbox = Per unit cost × Number of units

= $22.43 × 1,200

= $26,916

2) Fixed cost = $18,516

Now,

Total cost = Fixed cost + variable cost

$26,916 = $18,516 + variable cost

or

variable cost = $26,916 - $18,516 = $8,400

Per unit variable cost =
`\frac{\textup{Total variable cost}}{\textup{Total units produced}}`

=
`\frac{\textup{$8,400}}{\textup{1200}}`

= $7

3) Cost = Total variable cost + Total fixed cost

or

Cost = $7 × Number of units + $18,516

4) Number of units = 1,600

Total cost = Average cost per unit × Total units

= $22.43 × 1,600

= $35,888

5) Number of units = 1,600

therefore,

Total cost = $7 × Number of units + $18,516

= $7 × 1,600 + $18,516

= $11,200 + $18,516

= $29,716

6) Difference between the cost = $35,888 - $29,716 = $6,172