e. Why is the average cost lower when more burgers are produced? a) The fixed co

Question

e. Why is the average cost lower when more burgers are produced?

a) The fixed costs are spread across more burgers.

b) Variable costs are lower per burger.

c) Fixed costs are constant per burger.

In a slow year, Deutsche Burgers will produce 2.800 million hamburgers at a total cost of $3.400 million. In a good year, it can produce 4.800 million hamburgers at a total cost of $4.600 million. a. What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.) Fixed cost million b. What is the variable cost per hamburger? (Do not round intermediate calculations. Round your answer to 2 decimal places.) per Variable cost burger c. What is the average cost per burger when the firm produces 2 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) per burger Average cost d. What is the average cost per burger when the firm produces 3 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) per Average cost

Explanation / Answer

As pe High low method

Variable cost = [$4600 - $3400] / (4800 units - 2800 units)

= $1200 / 2000

   = $0.6

a. Fixed cost = $4600 - (4800 units * $0.6)

= $4600 - $2880

= $1720

b. variable cost = $0.6

c. Total cost for 2 million hamburgers = $1720 + (2 *$0.6 )

=$1720 + $1.2

= $1721.2

Average cost = $1721.2 / 2

= $860.6

d. Total cost for 3 million hamburgers = $1720 + (3 *$0.6 )

=$1720 + $1.8

= $1721.8

Average cost = $1721.8 / 3

= $573.93

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.