Question

Plowin' Supply plans to make 22 comma 000 tractors at its plant. Fixed costs are $ 550 comma 000 and variable costs are $ 180 per tractor. What is the average cost perâ tractor?

Answer 1

Answer:

$43

Explanation:

The total cost incurred by the company is made of two classes of cost namely; Fixed and variable cost. While the fixed cost is constant, the variable cost is dependent on the number of tractors produced.

A such,

Fixed cost = $550,000

Variable cost = 22000 × $180 = $396,000

Total cost = $550,000 + $396,000

= $946,000

The average cost per tractor is the result of the ratio of the total cost to the number of tractors

average cost per tractor =  $946,000/22,000

                                         = $43