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Fixed cost and variable cost for companies

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The websites of selected companies appear below. Review the information about the operations of each of the companies that is provided on these websites.

Biolea (http://www.biolea.gr).

Evian at http://www.evian.com).

Ircon International Limited (http://www.irconinternational.com).

Gulf Craft Inc. (http://www.gulfcraftinc.com).

A brief description of the operations of the company,

Two specific examples of possible fixed costs, two specific examples of possible variable costs, and two specific examples of possible mixed costs.

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Behavior of Costs

Biolea was founded in 1997 by George Dimitriadis and Christine Lacroix and produces and markets organic olive oil and promotes the use of authentic traditional stone ground and cold pressed method of extraction in olive oil production. The company is located in the Astrikas estate in the island of Crete. The estate is now being managed by the 5th generation Dimitriadis family who purchased the estate in the mid-18th century.
Based on the study of Biolea's operations an example of its fixed costs is the property tax levied on the estate. Another fixed cost is the salaries and wages of its management team - whatever the season is the number of members of the management team of Biolea remains relatively constant. On the other hand, the labor cost of the farm workers is a variable cost. As the olive oil production volume increases, the total production labor cost increases. Another variable cost is the cost of packaging which ...

Solution Summary

Fixed and variable costs for companies operations are examined. Multiple companies are examined.

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Cost Analysis for Haverford Company: Deriving Average Costs for Different Levels of Output

The Haverford Company is considering three types of plants to make a particular electronic device. Plant A is much more highly automated than plant B, which in turn is more highly automated than plant C. For each type of plant, average variable cost is constant so long as output is less than capacity, which is the maximum output of the plant. The cost structure for each type of plant is as follows:

Plant A Plant B Plant C
Avg. Variable Costs
Labor $1.10 $2.40 $3.70
Materials .90 1.20 1.80
Other .50 2.40 2.00
Total 2.50 6.00 7.50
Total fixed costs 300,000 75,000 25,000
Annual capacity 200,000 100,000 50,000

a. Derive the average cost of producing 100,000, 200,000, 300,000, and 400,000 devices per year with plant A. (For outputs exceeding the capacity of a single plant, assume that more than one plant of this type is built.)

b. Derive the average cost of producing 100,000, 200,000, 300,000, and 400,000 devices per year with plant B.

c. Derive the average cost of producing 100,000, 200,000, 300,000, and 400,000 devices per year with plant C.

d. Using the results of parts a through c, plot the points on the long-run average cost curve for the prouction of these electronic devices for outputs of 100,000, 200,000, and 400,000 devices per year.

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