An engineering production facility has developed a new device to be added to the

Question

An engineering production facility has developed a new device to be added to
their line of products. The expenses based on the number of units produced
are given in the table below. (show work)

Number of Units per Hour up to

Determine the following:
1. The average cost per unit for each of the 2 tiers based on the number of
produced units. Each tier will be considered separately
2. The fixed cost for each of the 2 tiers
3. The variable cost for each of the 2 tiers
4. The marginal cost to move from Tier 1 to Tier 2
5. The total cost if the number of units is 3,800
6. The total revenue if the number of units is 3,800
7. The profit or loss if the number of units is 3,800
8. Draw a chart showing the fixed cost, variable cost, total cost and revenue

Number of Units per Hour up to

Machinery cost
per hour Labor per
hour Power Sale Price              2,000         $300 $1,400 $0.4/Unit $2.0/Unit                  4,000         $300 $1,600 $0.4/Unit $2.0/Unit

Explanation / Answer

1. The average cost per unit for tier 1= (300+1400+0.4×2000)÷2000

=1.25$

And the average cost for tier 2=(300+1600+0.4×4000)÷4000

=0.875$

2. Fixed cost for tiers 1 = 0.4×2000 = 800$

Fixed cost for tier 2 = 0.4×4000 = 1600

3. Variable cost for tier 1= 300 + 1400 = 1700$

Variable cost for tier 2 = 300 + 1600 = 1900$

4. Marginal cost to move from tier 1 to tier 2 = change in total cost/change in output

={(300+1600+0.4×4000)-(300+1400+0.4×2000)}÷2000

=1000÷2000

=0.5$ per unit

5. Total cost if number of unit is 3800= 300+1600+0.4×3800

=3420$

6. Total revenue if number of units is 3800= 2.0×3800=7600$

7. Total profit = revenue- total cost

=7600-3420

=4180$

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