Mailbox Magic produces decorative mailboxes. When it produces 1,000 mailboxes, the company’s average cost per unit is $26.43.
a. What is the total cost of producing 1,000 mailboxes?
b. If $18,000 of the total costs are fixed, what is the variable cost of producing each mailbox?
c. Write Mailbox Magic’s cost equation.
d. If the plant manager uses the average cost per unit to predict total costs, what would the forecast be for 1,200 mailboxes?
e. If the plant manager uses the cost equation to predict total costs, what would the fore- cast be for 1,200 mailboxes?
f. What is the dollar difference between your answers to questions d and e? Which approach to forecasting costs is appropriate? Why?