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Exercise 6-24

Exercise 6-24. Mailbox Magic average cost per unit is $26.43 when it produces 1,000 mailboxes. What is the total cost of producing 1,000 mailboxes? Total cost / # of units = Average cost per unit Total cost = Average cost per unit x # of units Total cost = $ 26.43 x 1,000

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Exercise 6-24

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  1. Exercise 6-24 Mailbox Magic average cost per unit is $26.43 when it produces 1,000 mailboxes. • What is the total cost of producing 1,000 mailboxes? Total cost / # of units = Average cost per unit Total cost = Average cost per unit x # of units Total cost = $ 26.43 x 1,000 Total cost = $ 26,430 ACG 2071 - Spring 2011

  2. Exercise 6-24 Mailbox Magic average cost per unit is $26.43 when it produces 1,000 mailboxes. • If $18,000 is the fixed cost, what is the variable cost to produce each mailbox? Use cost equation: y = vx + f $26,430 = v (1,000) + 18,000 $ 8,430 = v (1,000) $ 8.43 = v The variable cost per unit = $8.43 3. Write the cost equation y = $8.43 (x) + $18,000 ACG 2071 - Spring 2011

  3. Exercise 6-24 Mailbox Magic average cost per unit is $26.43 when it produces 1,000 mailboxes. 4. What would the forecast of total costs be for 1,200 mailboxes if using the average cost per unit to predict costs? Total cost = Average cost per unit x Units Total cost = $26.43 x 1,200 Total cost = $31,716 ACG 2071 - Spring 2011

  4. Exercise 6-24 Mailbox Magic average cost per unit is $26.43 when it produces 1,000 mailboxes. 5. What would the forecast of total costs be for 1,200 mailboxes if using the cost equation (from #3) to predict costs? TC = VC per unit x Units + FC TC = ($ 8.43 x 1,200) + $18,000 TC = $ 10,116 + $18,000 TC = $ 28,116 6. Cost equation better predicts costs because it takes into account the variable and fixed components of producing mailboxes ACG 2071 - Spring 2011

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