Question

Yet another widget manufacturer has determined the following: the total cost is $2700 when 100 widgets are produced in a month, and the total cost is $3500 when 150 widgets are produced.

What is the fixed cost of production?
a) $1500
b) $1800
c) $2000
d) $2100

Answer 1

To find the fixed cost of production, we calculated the variable cost per widget and deducted the total variable cost from the total cost at a given production level. None of the options matched the fixed cost we computed, suggesting that there may be a mistake in our calculations or in the problem statement.

Step-by-step explanation:

To determine the fixed cost of production, we look at the costs that do not change with respect to the number of widgets produced. We are given two scenarios: the total cost is $2700 for 100 widgets and $3500 for 150 widgets. To find the variable cost per widget, we can calculate the increase in cost divided by the increase in widgets produced:

Variable Cost per Widget = (Total Cost for 150 widgets - Total Cost for 100 widgets) / (Number of widgets at 150 - Number of widgets at 100)

Variable Cost per Widget = ($3500 - $2700) / (150 - 100) = $800 / 50 = $16 per widget

Now that we have the variable cost per widget, we can calculate the fixed cost by subtracting the total variable cost at a certain production level from the total cost for that level:

Fixed Cost = Total Cost for 100 widgets - (Variable Cost per Widget × Number of widgets at 100)

Fixed Cost = $2700 - ($16 × 100) = $2700 - $1600 = $1100

However, none of the options given match the result we calculated. We may need to review the calculations or the problem statement again.