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Part 1
Express MailboxExpress Mailbox
produces decorative mailboxes. The company's average cost per unit is
$ 28.43$28.43
when it produces
1 comma 8001,800
mailboxes.
Read the requirements.
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Part 1
Requirement 1. What is the total cost of producing
1 comma 8001,800
mailboxes?
The total cost of producing 1,800 mailboxes is
$51,174
.
Part 2
Requirement 2. If
$ 24 comma 174$24,174
of the total costs are fixed, what is the variable cost of producing each mailbox?
The variable cost per unit is
$15.00
.
Part 3
Requirement 3. Write
Express MailboxExpress Mailbox's
cost equation.
y =
$15.00
x +
$24,174
Part 4
Requirement 4. If the plant manager uses the average cost per unit to predict total costs, what would the forecast be for
1 comma 9001,900
mailboxes?
The total cost is
$54,017
.
Part 5
Requirement 5. If the plant manager uses the cost equation to predict total costs, what would the forecast be for
1 comma 9001,900
mailboxes?
The total cost is
$52,674
.
Part 6
Requirement 6. What is the dollar difference between your answers to Questions 4 and 5? Which approach to forecasting costs is appropriate? Why?
The plant manager's forecast would be
1343
too high if he/she uses the
total cost
to predict costs.
The
is based on a mixed cost that will change as volume changes. If the manager uses this
method, he/she is erroneously assuming that the
does not change at different volumes. The
manager should use the
to predict costs since it correctly takes into account the variable and
fixed components of producing mailboxes.