Mountain Manufacturing is trying to predict the cost associated with producing its hiking packs. At a production level of 20,000 packs, Mountain Manufacturing's average cost per pack is $70.00.
-At Mountain Manufacturing if $200,000 of the total costs are fixed, what is the variable cost of producing each pack?
A) $50
B) $60
C) $70
D) $40

Question

Quizplus · Accepted Answer

To find the variable cost per pack, we need to subtract the total fixed cost from the total cost at a production level of 20,000 packs and then divide the result by the number of packs.

Total cost at a production level of 20,000 packs = 20,000 x $70.00 = $1,400,000
Total fixed cost = $200,000

Total variable cost = Total cost - Total fixed cost = $1,200,000
Variable cost per pack = Total variable cost / Number of packs = $1,200,000 / 20,000 = $60.

Therefore, the variable cost of producing each pack is $60, and the best choice is B.

Mountain Manufacturing Is Trying to Predict the Cost Associated with Producing