In a slow year, Deutsche Burgers will produce 3.2 million hamburgers at a total
ID: 2732347 • Letter: I
Question
In a slow year, Deutsche Burgers will produce 3.2 million hamburgers at a total cost of $5.4 million. In a good year, it can produce 5.4 million hamburgers at a total cost of $6.1 million. a. What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.) Fixed cost $ million b. What is the variable cost per hamburger? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Variable cost $ per burger c. What is the average cost per burger when the firm produces 2 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Average cost $ per burger d. What is the average cost per burger when the firm produces 3 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
a.
Calculate the fixed costs of hamburger production:
Let us calculate the variable cost per unit first in order to compute fixed cost.
Table -A
In millions
Particulars
Slow year
Good year
Difference
Total cost
$ 6.10
$ 5.40
$ 0.70
Total number of hamburger
5.40
3.20
2.20
Variable cost per unit
$ 0.31818181818
Fixed cost:
Table -B
In millions (Except variable cost info)
Particulars
Slow year
Good year
Total cost (A)
$ 6.10
$ 5.40
Total number of hamburger
5.40
3.20
Variable cost per unit
$ 0.31818182
$ 0.31818182
Total Variable cost (B)
$ 1.71818182
$ 1.01818182
Total fixed cost (C ) = (A)- (B)
$ 4.4
$ 4.4
b.
Variable cost per hamburger is $0.32 million as computed (in Table–A) above.
c.
Compute the average cost per burger when the firm produces 2 million hamburgers:
Particulars
Amount
Number of burgers produced (million) (A)
2.00
Variable cost per unit (B)
$ 0.31818182
Total variable cost (million) (C ) = (A) *( B)
$ 0.64
Fixed cost (D) (million)
$ 4.4
Total cost (E) = (C ) + (D) (million)
$ 5.02
Average cost per burger
$ 2.51
Therefore, Average cost per burger is $2.51
d.
Compute the average cost per burger when the firm produces 3 million hamburgers:
Particulars
Amount
Number of burgers produced (million) (A)
3.00
Variable cost per unit (B)
$ 0.31818182
Total variable cost (million) (C ) = (A) *( B)
$ 0.95
Fixed cost (D) (million)
$ 4.4
Total cost (E) = (C ) + (D) (million)
$ 5.34
Average cost per burger
$ 1.78
Therefore, Average cost per burger is $1.78
In millions
Particulars
Slow year
Good year
Difference
Total cost
$ 6.10
$ 5.40
$ 0.70
Total number of hamburger
5.40
3.20
2.20
Variable cost per unit
$ 0.31818181818