The controller for Andy's Bicycles has gathered the following cost and activity level information:
a. What is the total cost of producing 1,000 racing bicycles?
b. What is the variable cost of producing each racing bicycle?
c. Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles?
d. If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 racing bicycles?
e. Is there a difference between the forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference?

Question

The controller for Andy's Bicycles has gathered the following cost and activity level information:
  a. What is the total cost of producing 1,000 racing bicycles?
b. What is the variable cost of producing each racing bicycle?
c. Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles?
d. If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 racing bicycles?
e. Is there a difference between the forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference?

Quizplus · Accepted Answer

The Answer of The controller for Andy's Bicycles has gathered the following cost and activity level information:
  a. What is the total cost of producing 1,000 racing bicycles?
b. What is the variable cost of producing each racing bicycle?
c. Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles?
d. If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 racing bicycles?
e. Is there a difference between the forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference?

The Controller for Andy's Bicycles Has Gathered the Following Cost