E6-24A Use unit cost data to forecast total costs (Learning Objective 2)

Delivery Mailbox produces decorative mailboxes. The company’s average cost per unit is

$20.43 when it produces 1,000 mailboxes.

Requirements 1. What is the total cost of producing 1,000 mailboxes?

2. If $10,430 of the total costs is fixed, what is the variable cost of producing each mailbox?

3. Write Delivery Mailbox’s cost equation.

4. If the plant manager uses the average cost per unit to predict total costs, what would the forecast be for 1,100 mailboxes?

5. If the plant manager uses the cost equation to predict total costs, what would the forecast be for 1,100 mailboxes?

6. What is the dollar difference between your answers to questions 4 and 5? Which approach to forecasting costs is appropriate? Why?