Situation 21-3
Gizmos, Inc. produces gizmos at an average total cost of $22 and an average variable cost of $14. The only fixed input used in the production of gizmos costs $32,000.
Refer to Situation 21-3. What are the total variable costs?

Question

Quizplus · Accepted Answer

Total variable cost = Average variable cost x Quantity produced
We do not know the quantity produced, but we can use the information given to find the difference between average total cost and average variable cost: 
Average fixed cost = Average total cost - Average variable cost 
$22 - $14 = $8 is the average fixed cost per unit. 
We can now use the information about the fixed input cost to find the quantity produced: 
Quantity produced = Total fixed input cost / Average fixed cost per unit 
Quantity produced = $32,000 / $8 = 4,000 units 
Total variable cost = Average variable cost x Quantity produced 
Total variable cost = $14 x 4,000 = $56,000

Situation 21-3 Gizmos, Inc. Produces Gizmos at an Average Total Cost of Cost