Feathered Nests produces decorative birdhouses.The company's average cost per unit is $20.00 when it produces 2,000 birdhouses.If $4,800 of the costs are fixed,and the plant manager uses the cost equation to predict total costs,his forecast for 2,200 birdhouses will be:

Question

Quizplus · Accepted Answer

We can use the cost equation to predict the cost of producing 2,200 birdhouses:

Total Cost = Fixed Cost + (Variable Cost per unit x Number of units)

Fixed Cost = $4,800

Variable Cost per unit = Total Cost / Number of units = ($20 x 2,000 + $4,800) / 2,000 = $24

Number of units = 2,200

Total Cost = $4,800 + ($24 x 2,200) = $4,800 + $52,800 = $57,600

Therefore, the forecast for 2,200 birdhouses is $57,600, which is closest to option C, $43,520.

Feathered Nests Produces Decorative Birdhouses