Question

Rollins Mailbox produces decorative mailboxes. The company's average cost per unit is $26.43 when it produces 1,600 mailboxes. Requirements 1. What is the total cost of producing 1,600 mailboxes? 2. If $21,488 of the total costs are fixed, what is the variable cost of producing each mailbox? 3. Write Rollins Mailbox's cost equation. 4 If the plant manager uses the average cost per unit to predict total costs, what would the forecast be for 1,900 mailboxes? 5. If the plant manager uses the cost equation to predict total costs, what would the forecast be for 1,900 mailboxes? What is the dollar difference between your answers to questions 4 and 5? Which approach to forecasting costs is appropriate? Why? 6. Requirement 1. What is the total cost of producing 1,600 mailboxes? The total cost of producing 1,600 mailboxes is $ Requirement 2. If $21,488 of the total costs are fixed, what is the variable cost of producing each mailbox? The variable cost per unit is $ Requirement 3. Write Rollins Mailbox's cost equation. y $ x+$ Requirement 4. If the plant manager uses the average cost per unit to predict total costs, what would the forecast be for 1,900 mailboxes? The total cost is S

Answer 1

1.Total cost = 26.43*1600 = $42,288

2.Variable cost per unit = (Total cost – Fixed cost)/Number of units

= (42,288-21,488)/1600

= $13 per mailbox

3.Cost Equation = Fixed costs + Variable cost per unit*Number of units

Y = $13x + $21,488

4.Forecast = 26.43*1900 = $50,217

5.Forecast = 13*1900 + 21488 = $46,188

Too high if uses average cost

Average cost is mixed cost

Should use cost equation

Dollar difference = $4,029