Mountain Manufacturing is trying to predict the cost associated with producing its hiking packs. At a production level of 20,000 packs, Mountain Manufacturing's average cost per pack is $70.00.
-At Mountain Manufacturing if $200,000 of the costs are fixed, and the plant manager uses the cost equation to predict total costs, her forecast for 25,000 packs will be
A) $1,500,000.
B) $1,750,000.
C) $1,400,000.
D) $1,700,000.

Question

Quizplus · Accepted Answer

First, calculate the variable cost per pack: At 20,000 packs, the total cost is 20,000 * $70 = $1,400,000. Subtracting the fixed costs ($200,000) gives $1,200,000 in variable costs, or $60 per pack. For 25,000 packs, the total cost is 25,000 * $60 (variable cost) + $200,000 (fixed cost) = $1,500,000 + $200,000 = $1,700,000.

Mountain Manufacturing Is Trying to Predict the Cost Associated with Producing