Situation 21-1 Diane's Donuts will begin selling donuts next week. Diane figures that the average variable cost to make each donut will be constant at $0.30. She has already paid $20,000 for the donut-making machinery and one year's rent.
Refer to Situation 21-1. What will Diane's total variable costs be if she sells 36,500 donuts in one year?

Question

Quizplus · Accepted Answer

Diane's total variable costs will be the average variable cost per donut multiplied by the number of donuts sold:
Total variable costs = ($0.30 per donut) x (36,500 donuts) = $10,950. Diane's fixed costs (the cost of the machinery and rent) are sunk costs and do not affect the total variable costs.

Situation 21-1 Diane's Donuts Will Begin Selling Donuts Next Week