The cost components of an air conditioner include $35 for the compressor;$11.50 for the sheet moulded compound frame;and $80 per unit for assembly.The factory machines and tools cost is $55 000.The company expects to produce 1500 air conditioners in the coming year.What cost function best represents these costs?
A)y = 55 000 + 126.50X
B)y = 55 000 + 1500X
C)y = 1500 + 126.5X
D)y = 1500 + 55 000X

Question

Quizplus · Accepted Answer

The cost function combines both fixed costs and variable costs. The fixed cost is the one-time cost for factory machines and tools, which is $55,000. The variable costs are those that change with the number of units produced, which in this case are the costs of the compressor ($35), the frame ($11.50), and assembly ($80) per unit, adding up to $126.50 per unit. Therefore, the cost function is $55,000 (fixed cost) + $126.50X (variable cost per unit times the number of units).

The Cost Components of an Air Conditioner Include $35 for the Compressor;$11.50