Rollins Mailboxes produces decorative mailboxes. The company's average cost per unit is $20.43 when it produces 1,600 mailboxes.
Requirements
1. What is the total cost of producing 1,600 mailboxes?
2. If $24,688 of the total costs are fixed, what is the variable cost of producing each mailbox?
3. Write Rollins Mailboxes' cost equation.
4. If the plant manager uses the average cost per unit to predict total costs, what would the forecast be for 1,900 mailboxes?
5. If the plant manager uses the cost equation to predict total costs, what would the forecast be for 1,900 mailboxes?
6. What is the dollar difference between your answers to Requirements 4 and 5? Which approach to forecasting costs is appropriate? Why?