Question

Saved Mighty Muffler, Inc. operates an automobile service facility that specializes in replacing mufflers on compact cars. The following table shows the costs incurred during a month when 500 mufflers were replaced. (Round "cost per muffler" to 2 decimal places.) Number of Muffler Replacements 400 500 600 Total costs Found costs Variable costs Total costs Cost per muffler replacement Fixed cost Variable cost Total cost per muffler replacement $ 44,000 24,000 $ 68,000

Answer 1

Notes

1. Total Fixed cost of an factory/organisation remains same irrespective of number of units produed like ( 44,00 at all 3 levels) . Where has fixed cost per unit keeps changing like when units prodced more fixed cost per unit will be less ( 73.33 when produced 600 units) and when units produced are less fixed cost per unit will be more like ( 110 when produced 400 units ).

Some Examples of fixed cost are factory rent, insurance etc

2. Variable cost per unit will be remain same like ( 48 at all level 400,500,600 units) but total variable cost varies as number of units produced ( 19,200 , 24,000 , 28,800 ).

Some examples of vraible cost are Cost of raw materials, wages paid on prodcution etc.

See For working below

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Variable cost per unit = 24000/500 = $ 48 per unit

Total varaiable cost
At 400 units = 48 x 400 =	19,200
At 500 units = 48 x 500 =	24,000
At 600 units = 48 x 600 =	28,800

Fixed cost per unit
At 400 units = 44000/400 =	110
At 500 units = 44000/500 =	88
At 600 units = 44000/600 =	73.33

	Number of Muffler Replacements
	400	500	600
Total costs
Fixed costs	44,000	44,000	44,000
Varaiable costs	19200	24,000	28800
Toatl cost	63,200	68000	72,800
Cost per muffler replacement
Fixed costs	110	88	73.33
Varaiable costs	48	48	48
Total cost per muffler replacement	158	136	121.33