In a slow year, Deutsche Burgers will produce 2.9 million hamburgers at a total
ID: 2762974 • Letter: I
Question
In a slow year, Deutsche Burgers will produce 2.9 million hamburgers at a total cost of $4.3 million. In a good year, it can produce 4.9 million hamburgers at a total cost of $5.5 million.
What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.)
What is the variable cost per hamburger? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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.)
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.)
a.What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.)
Explanation / Answer
a.
Calculate the fixed costs of hamburger production:
Variable cost = Changes in total cost / Changes in production
= ($5.5 million - $4.3 million) / (4.9 million – 2.9 million)
= $1.2 million / 2 million
= $0.6 per unit
Therefore variable cost per unit is $0.6.
Fixed cost = Total cost – Total variable cost
= ($5.5 million) – (4.9 million * $0.6)
= $5.5 million - $2.94 million
= $2.56 million
Therefore, fixed cost is $2.56 million
b.
Calculate the variable cost per hamburger:
Variable cost = Changes in total cost / Changes in production
= ($5.5 million - $4.3 million) / (4.9 million – 2.9 million)
= $1.2 million / 2 million
= $0.6 per hamburger
Therefore variable cost per unit is $0.6.
c.
Calculate the average cost per burger when the firm produces 2 million hamburgers:
Total cost = variable cost + fixed cost
= (2 million * $0.6) + ($2.56 million)
= $1.2 million + $2.56 million
= $3.76 million
Per hamburger = $3.76 million / 2 million
= $1.88 per hamburger
Therefore, per hamburger is $1.88 at production of 2 million hamburgers.
d.
Calculate the average cost per burger when the firm produces 3 million hamburgers:
Total cost = variable cost + fixed cost
= (3 million * $0.6) + ($2.56 million)
= $1.8 million + $2.56 million
= $4.36 million
Per hamburger = $4.36 million / 3 million
= $1.453 per hamburger
Therefore, per hamburger is $1.453 at production of 3 million hamburgers.