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24 July, 08:38

A sprit manufacturer is considering a production investment associated with a fixed cost of $4 million and a variable cost (labor and material) of $3 per bottle. What is the average fixed cost at production level of 200 thousand bottles per year?

a. $3

b. $20

c. $23

d. $10

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Answers (1)
  1. 24 July, 08:44
    0
    Option (b) is correct.

    Explanation:

    Given that,

    Fixed cost = $4 million

    Variable cost (labor and material) = $3 per bottle

    Production level = 200,000 bottles per year

    Average fixed cost is determined by dividing the total fixed cost by production level.

    Therefore,

    Average fixed cost at 200,000 bottles per year:

    = Fixed cost : Production level

    = $4,000,000 : 200,000

    = $20
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