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24 April, 15:33

Diane's Donuts will begin selling donuts next week. Diane figures that the average variable cost to make each donut will be constant at $0.30. She has already paid $20,000 for the donut-making machinery and one year's rent.

Refer to Situation. What will Diane's approximate average fixed costs be if she sells 36,500 donuts in one year?

A. $0.088

B. $0.30

C. $0.138

D. $0.55

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Answers (1)
  1. 24 April, 16:02
    0
    Option (d) is correct.

    Explanation:

    Given that,

    Average variable cost = $0.30 for each donut

    Fixed cost: Cost of rent and machinery = $20,000

    If the number of donuts produced and sold in one year is 36,500, then

    Average fixed cost:

    = Total fixed cost : Number of units sold

    = $20,000 : 36,500

    = $0.547 or $0.55

    Therefore, the average fixed costs be $0.55 if she sells 36,500 donuts in one year.
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