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

Explanation / Answer

1.Let the total cost for first tier be A and for second tier be B

A=300+1400+(0.4*2000)=2500

Therefore,average cost for first tier=2500/2000=5/4=1.25

B=300+1600+(0.4*2000)=2700

Therefore,average cost for second tier=2700/4000=27/40=0.675

2.The firxed cost for first and second tier is 2500 and 2700 respectively.

3.The variable cost is depends on number of units produced.

4.themarginal cost to move from Tier 1 to Tier 2 is 200.

5.The total cost if number of units is 3800 is 2700.(From tier 2)

6.Here cost price is 2700 for upto 4000 units.

Therefore for 3800 units cost price will be 2700.

And here sale price is given $2.00 per unit

Hence selling price for 3800 units=3800*2=7600

Total revenue=7600-2700=4900

7.The profit is 4900

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