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

To find the total cost of producing 2,000 tires, we need to calculate the total variable cost for producing this quantity.

Variable cost per tire = $47.50 + $17.50 + $12.50 = $77.50

Total variable cost for producing 2,000 tires = 2,000 x $77.50 = $155,000

Fixed costs do not change with changes in production levels, so we do not need to consider them here.

Therefore, the total cost of producing 2,000 tires is $155,000.

Option C is the closest to this value, at $68,000, suggesting that the plant has some economies of scale, but not enough to bring down the total cost to the level of the variable costs alone.

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