Chapter 6, Problem 6.43BE

Use unit cost data to forecast total costs (Learning Objective 2)

Melcher Mailboxes produces decorative mailboxes. The company’s average cost per unit is $20.43 when it produces 1,000 mailboxes.

Requirements

1. 1. What is the total cost of producing 1,000 mailboxes?
2. 2. If $10,430 of the total costs are fixed, what is the variable cost of producing each mailbox?
3. 3. Write Melcher Mailboxes’ cost equation.
4. 4. If the plant manager uses the average cost per unit to predict total costs, what would the forecast be for 1,700 mailboxes?
5. 5. If the plant manager uses the cost equation to predict total costs, what would the forecast be for 1,700 mailboxes?
6. 6. What is the dollar difference between your answers to Requirements 4 and 5? Which approach to forecasting costs is appropriate? Why?