Carol’s Flowers, a profit-seeking enterprise, is considering whether or not to p
ID: 422527 • Letter: C
Question
Carol’s Flowers, a profit-seeking enterprise, is considering whether or not to produce and sell a new product line of flowers in brown bags. Carol has has estimated a one-time cost of $3,000 to start a new production line for this product. Her marketing research projects first-year demand to range from 800 to 1,000 bags. Once the product is introduced, the first-year variable cost per flower bag will be $3.11, and each bag will be priced at $5.99. Carol needs to develop simple mathematical models to help make a decision whether or not she should move ahead with new product offering. Carol does not tolerate introduction of unprofitable product lines.
What is the correct model expression for first-year total cost?
a.
TC=3,000+3.11xExplanation / Answer
here the one time cost is the fixed cost FC=$3000
variable cost for first year VC =$3.11
the total cost is calculated as TC =FC+VC*x
where x is the no of units
=> TC= 3000+3.11*x
so the annswer is option a