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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:
Average Variable Costs Plant A Plant B Plant C
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
What is average costs of producing 100,000, 200,000, 300,000, and 400,000 devices per year with plant A and for plant B.
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Solution Summary
The average costs in this case are computed.
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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