A sprit manufacturer is considering a production investment associated with a fixed cost of $4 million and a variable cost (labor and material) of $3 per bottle. What is the average fixed cost at production level of 200 thousand bottles per year?

a. $3

b. $20

c. $23

d. $10

Option (b) is correct.

Explanation:

Given that,

Fixed cost = $4 million

Variable cost (labor and material) = $3 per bottle

Production level = 200,000 bottles per year

Average fixed cost is determined by dividing the total fixed cost by production level.

Therefore,

Average fixed cost at 200,000 bottles per year:

= Fixed cost : Production level

= $4,000,000 : 200,000

= $20