Harbor Manufacturing is trying to predict the cost associated with producing its anchors.At a production level of 4,000 anchors,Harbor Manufacturing's average cost per anchor is $50.00.If $20,000 of the costs are fixed,and the plant manager uses the average cost per unit to predict total costs,her forecast for 5,000 anchors will be:
A)$250,000.
B)$245,000.
C)$200,000.
D)$ 50,000.

Question

Quizplus · Accepted Answer

The average cost per anchor at 4,000 units is $50, which includes both fixed and variable costs. Total cost at 4,000 units is $50 x 4,000 = $200,000. Since $20,000 of these are fixed costs, the variable cost is $180,000. The variable cost per anchor is $180,000 / 4,000 = $45. For 5,000 anchors, total cost = fixed costs + (variable cost per anchor x 5,000) = $20,000 + ($45 x 5,000) = $245,000. However, if the manager uses the average cost per unit ($50) to predict costs, she would calculate $50 x 5,000 = $250,000.

Harbor Manufacturing Is Trying to Predict the Cost Associated with Producing