Question

Suppose Modern Merchandise, Inc., makes and markets do-it-yourself hardware, house wares, and industrial products. The company's new Aperture Moonblind is winning customers by virtue of its high quality and quick order turnaround time. The product also benefits because its price point bridges the gap between ready-made vinyl blinds and their high-priced custom counterpart. In addition, the company's expanding product line is sure to benefit from cross-selling across different lines. Given the success of the Aperture Miniblind product, Modern Merchandise plans to open a new production facility near Beaufort, South Carolina. Based on information provided by its chief financial officer, the company estimates fixed costs for this product of $50,000 per year and average variable costs of:
AVC = $0.5 + $0.0025Q,
Where AVC is average variable cost (in dollars) and Q is output.
A. Estimate total cost and average total cost for the projected first-year volume of 20,000 units.
B. An increase in worker productivity because of greater experience or learning during the course of the year resulted in a substantial cost saving for the company. Estimate the effect of learning on average total cost if actual second-year total cost was $848,000 at an actual volume of 20,000 units.



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  • CreatedFebruary 13, 2015
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