Question

Tayts inc manufactures ladders. currently the company manufactures and sells 100000 ladders per year. the variable cost per ladder is $8, and the total fixed costs are $200000. tayts inc has the capacity to invrease sales by 20000 ladders per year. if total production remains within the relevant range, what can tayt expect to happen to its variable and fixed costs?

multiple choice
a. variable cost per unit will increase
b. variable costs will remain at $8 per unit
c. fixed costs will decrease to 160000
d. fixed costs will increase to 240000

Answer 1

Tayts Inc.'s variable cost per ladder will remain at $8 per unit, and the total fixed costs will stay at $200,000 when production increases, provided the production increase stays within the relevant range.

Step-by-step explanation:

When Tayts Inc. increases its production of ladders but remains within the relevant range, the company can expect certain behaviors in its costs. Variable costs per unit are costs that vary with the level of output; they are typically constant on a per-unit basis. In this case, the variable cost per ladder is $8 and would remain at $8 per unit even if production increases, assuming that there are no changes in variable costs per unit due to economies of scale or purchasing discounts.

Fixed costs, on the other hand, do not change with the level of output in the short term. Therefore, the total fixed costs of $200,000 would remain the same even if production is increased, because they are not dependent on the number of units produced.