You run a small business producing picture frames

Accounting Dec 07, 2020

You run a small business producing picture frames. This month, your total cost of production is $10,321, your variable cost of production is $4,233, and you produce 5,619 picture frames. It follows that

a. average variable cost is $.853.

b. average fixed cost is $1.083.

c. average cost is $1.98.

d. average cost is $3.65.

Expert Solution

If total cost is $10,321 and total variable cost is $4,233, the total fixed cost is therefor:

Fixed Cost = $10,321 - $4,233 = $6,088

The total units produced is 5,619 so:

Average total cost = $10,321 / 5,619 units = $1.84 per frame

Average variable cost = $4,233 / 5,619 units = $0.75 per frame

Average fixed cost = $6,088 / 5,619 units = $1.08 per frame

Item a is incorrect. Average variable cost should be $0.75.
Item c and d is incorrect. Average cost should be $1.84.

Answer: b

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