The St. Thomas Winery plans to open a new production facility in the Napa Valley of California. Based on information provided by the accounting department, the company estimates fixed costs of $250,000 per year and average variable costs of
AVC = $10 + $0.01Q
Where AVC is average variable cost (in dollars) and Q is output measured in cases of output per year.
A. Estimate total cost and average total cost for the coming year at a projected volume of 4,000 cases.
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 total cost was $522,500 at an actual volume of 5,000 cases.