Wheel and Tire Manufacturing currently produces 1,000 tires per month. The following per unit data apply for sales to regular customers: The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?

Question

Wheel and Tire Manufacturing currently produces 1,000 tires per month. The following per unit data apply for sales to regular customers:  The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?

Quizplus · Accepted Answer

Using the given information, we can calculate the total cost per unit as follows:

Total cost per unit = Variable cost per unit + Fixed cost per unit

Total cost per unit = $70 + ($360,000 / 1,000)

Total cost per unit = $430

To produce 2,000 tires, the total cost would be:

Total cost = Total cost per unit x Quantity

Total cost = $430 x 2,000

Total cost = $860,000

Therefore, the total cost of producing 2,000 tires would be $68,000.

Wheel and Tire Manufacturing Currently Produces 1,000 Tires Per Month