Feathered Nests produces decorative birdhouses. The company's average cost per unit is $20.00 at a production level of 2,000 birdhouses. What is the total cost of producing 2,000 birdhouses?
-If $4,800 of the costs are fixed, and the plant manager uses the average cost per unit to predict total costs, his forecast for 2,200 birdhouses will be
A) $44,000.
B) $43,520.
C) $4,000.
D) $40,000.

Question

Quizplus · Accepted Answer

The total cost of producing 2,000 birdhouses can be found by multiplying the average cost per unit by the number of units produced: $20.00 x 2,000 = $40,000.
If $4,800 of the costs are fixed, then the variable cost per unit is $20.00 - ($4,800 / 2,000) = $17.60. Using this variable cost per unit, the forecast for 2,200 birdhouses would be: ($17.60 x 2,200) + $4,800 = $43,520. Therefore, the best choice is B.

Feathered Nests Produces Decorative Birdhouses