Calculating average and total costs
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A manufacturing plant has a potential production capacity of 1000 units per month (capacity can be increased by 10% if the subcontractors are employed). The plant is normally operated at about 80% of capacity. Operating the plant above this level significantly increases variable costs per unit because of the need to pay the skilled workers higher overtime wage rates. For output levels up to 80% of capacity, variable cost per unit is $100. Above 80 and up to 90%, variable costs on this additional output increases by 10%. When output is above 90 and up to 100% of capacity, the additional units cost an additional 25% over the unit variable costs for outputs up to 80% of capacity. For production above 100% and up to 110% of capacity, extensive subcontracting work is used and the unit variable costs of these additional units are 50% above those at output levels up to 80% of capacity. At 80% of capacity, the plant's fixed costs per unit are $50. Total fixed costs are not expected to change within the production range under consideration. Based on the preceding information, complete the attached table.
Quantity Total Cost Fixed Cost Variable Cost ATC AFC AVC MC
500
600
700
800
900
1000
1100
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Solution Summary
Solution describes the steps to calculate TVC, TFC, TC, AFC, ATC, AVC and MC for different output levels in the given case.
Solution Preview
Please refer attached file for better clarity of tables.
Quantity Total Cost Fixed Cost Variable Cost ATC AFC AVC MC*
Q TC=TFC+TVC TFC TVC TC/Q TFC/Q TVC/Q
500 90000 40000 50000 180.00 80.00 100.00 100.00
600 100000 40000 60000 166.67 66.67 100.00 100.00
700 110000 40000 70000 157.14 57.14 100.00 100.00
800 120000 40000 80000 150.00 50.00 100.00 100.00
900 131000 40000 91000 145.56 44.44 101.11 110.00
1000 143500 40000 103500 143.50 40.00 103.50 125.00
1100 158500 40000 118500 144.09 36.36 107.73 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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