Question

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach 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. 2.00b. 1.80c. 3.00d. 1.60

Answer 1

Answer:

the correct answer is option (a) 2.00

Explanation:

Given:

Total units produced = 8,000

variable cost incurred = $24,000

Total cost incurred = $40,000

Now,

Total cost = Fixed cost + Variable cost

or

$40,000 = Fixed cost + $24,000

Or

Fixed cost = $40,000 - $24,000 = $16,000

Therefore,

The average fixed cost for 8000 units = $\frac{\textup{Total fixed cost}}{\textup{Total units produced}}$

or

The average fixed cost =  $\frac{\textup{16,000}}{\textup{8,000}}$

or

The average fixed cost = $2

hence,

the correct answer is option (a) 2.00