I'MaPizzaCo produces and sells specialty pizzas

Accounting Dec 07, 2020

I'MaPizzaCo produces and sells specialty pizzas. Last year, it produced 8,000 specialty pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company Incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was:

A) $3.00.

D) $2.00.

C) $1.80.

D) $1.60.

Expert Solution

Option B) $2.00 is correct

This option is correct because

Here

Total cost = TC

Total fixed cost = TFC

Total variable cost = TVC

Average fixed cost = AFC

TC = TFC + TVC

40000 = TFC + 24000

TFC = 16000

AFC= TFC / Q

AFC = 16000 / 8000

AFC = $2

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