The Lead City factory makes car batteries. The factory opened in 2014, and by the end of the year, they had made 30,000 batteries for a total cost of $2,500,000. In 2015, they made 40,000 batteries for an additional cost of $200,000. What is the variable cost and fixed cost of all the batteries made in 2017 and 2018

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Business

Kaylee

26 June, 07:19

The Lead City factory makes car batteries. The factory opened in 2014, and by the end of the year, they had made 30,000 batteries for a total cost of $2,500,000. In 2015, they made 40,000 batteries for an additional cost of $200,000. What is the variable cost and fixed cost of all the batteries made in 2017 and 2018

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Karlie Boyer · Answer 1

2017:

Total variable cost = $600,000

Total fixed cost = $1,900,000

2018:

Total variable cost = $800,000

Total fixed cost = $1,900,000

Explanation:

Giving the following information:

The factory opened in 2014, and by the end of the year, they had made 30,000 batteries for a total cost of $2,500,000. In 2015, they made 40,000 batteries for an additional cost of $200,000.

I will assume that the fixed costs remain constant in both years.

We can calculate the variable cost per unit using the incremental cost.

Variable cost per unit = incremental cost/incremental units

Variable cost per unit = 200,000/10,000 = $20

Now, we can calculate the fixed costs:

2017:

Total variable cost = 30,000*20 = $600,000

Total fixed cost = 2,500,000 - 600,000 = $1,900,000

2018:

Total variable cost = 40,000*20 = $800,000

Total fixed cost = $1,900,000