Randy is not certain if Sports Depot's ideas will affect SPI's plans. For example, $\frac{S}{P}$I is considering adding tennis racquets to the lines it produces. This would require a $$500,000$ addition to its factory, as well as the purchase of new equipment that costs $$1,000,000.$ The variable cost to produce a tennis racquet would be $$20,$ but Todd thinks that SPI could sell the racquet at a wholesale price of $$40$ each. That would allow most retailers to add their normal markup and make a profit. However, Sports Depot may sells the racquet at a lower than normal price.

SPI pays its salespeople a commission on each product they sell. The commission is

part of the total cost$-$but not specifically a fixed or a variable cost.

a variable cost.

part of the total fixed cost.

not included in figuring average cost.

None of these answers is correct.