Answer the following questions using the information below:
Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:

-The plant has capacity for 3,000 axles and is considering expanding production to 3,000 axles. What is the total cost of producing 3,000 axles?
A)$135,000
B)$225,000
C)$175,000
D)$255,000

Question

Answer the following questions using the information below:
Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:
 
-The plant has capacity for 3,000 axles and is considering expanding production to 3,000 axles. What is the total cost of producing 3,000 axles?
A)$135,000 
B)$225,000 
C)$175,000 
D)$255,000

Quizplus · Accepted Answer

The best choice is to produce 3,000 axles since the plant has capacity for it. The total cost of producing 3,000 axles can be calculated by multiplying the variable cost per unit by the number of units produced and adding the total fixed cost.

Variable cost per unit = $25 + $80 + $45 = $150
Total variable cost for 3,000 axles = $150 * 3,000 = $450,000

Total fixed cost = $600,000
Total cost for producing 3,000 axles = Total fixed cost + Total variable cost = $600,000 + $450,000 = $1,050,000

Therefore, the total cost of producing 3,000 axles is $175,000 per unit, option C is the correct answer.

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