Harbour Manufacturing is trying to predict the cost associated with producing its anchors. At a production level of 4,000 anchors, Harbour Manufacturing's average cost per anchor is $50.00.
-At Harbour Manufacturing 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

At 4,000 anchors, the average cost is $50.00 per anchor, which includes both fixed and variable costs. The total cost for 4,000 anchors is 4,000 * $50 = $200,000. Given that $20,000 of this is fixed cost, the variable cost is $200,000 - $20,000 = $180,000. The variable cost per anchor is $180,000 / 4,000 = $45. For 5,000 anchors, the total variable cost is 5,000 * $45 = $225,000. Adding the fixed cost of $20,000, the total cost for 5,000 anchors is $225,000 + $20,000 = $245,000. However, if the plant manager uses the average cost per unit ($50) to predict total costs for 5,000 anchors, she would calculate 5,000 * $50 = $250,000.

Harbour Manufacturing Is Trying to Predict the Cost Associated with Producing