Question

a) Complete the preceding table by filling in the missing amounts for the levels of activity shown in the first row of the table.

b)Explain why the total cost per chair decreases as the number of chairs increases.

Exercise 2-6B Fixed versus variable cost behavior Nielsen Chairs Corporation produces ergonomically designed chairs favored by architects. The com- pany normally produces and sells from 2,000 to 5,000 chairs per year. The following cost data apply to various production activity levels:

Answer 1

The total fixed costs does not vary with output whereas total variable costs varies with output
The completed table is shown below
No of chairs	2000	3000	4000	5000
Total costs incurred
Fixed	$80,000	$80,000	$80,000	$80,000
Variable	$20,000	$30,000	$40,000	$50,000
		(3000*10)	(4000*10)	(5000*10)
Total costs	$100,000	$110,000	$120,000	$130,000
Per unit chair costs
Fixed	$40.00	$26.67	$20.00	$16.00
Variable	$10.00	$10.00	$10.00	$10.00
Total costs per chair	$50.00	$36.67	$30.00	$26.00
Fixed costs per unit	Total fixed costs/No of chairs
b.
With increase in number of chairs produced the fixed costs get spread over larger no of chairs and thus fixed per unit decreases. This decreases the total costs per chair