Question

Kitware Corp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred fixed costs of $17,000 and a total cost of $45,000. Kitware's average variable cost to produce the 7,000 can openers was

Answer 1

Average variable cost = $4 per can opener

Step-by-step explanation:

The total cost is a function of the total fixed cost plus the total variable cost. If the total cost to produce 7000 can openers was $45000 and the total fixed cost was $17000, we can calculate the total variable cost to be,

Total variable cost = Total Cost - Total Fixed Cost

Total Variable cost = 45000 - 17000

Total Variable cost = $28000

The average variable cost per unit can be calculated by dividing the total variable cost incurred divided by the total number of units produced.

Average variable cost = 28000 / 7000

Average variable cost = $4 per can opener