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XYZ when makes an additional unit of a product, it incurs extra costs of $6 for direct material, $7 for direct labour, $2.5 for variable O/H and $2 for fixed OH based on the expected production of 15000 units. If business buys enough material for 5000 units, it will only have to pay $5 per unit.
What will be the cost function for production of more than 5000 units of material?
Please do not simply set test questions and expect an answer. You must have an answer in the same book in which you found the question, and so you should ask about whatever it is in the answer that you are not clear about and then I will help you.
For more than 5,000 units, the variable costs will be 5 + 7 + 2.5 = $14.50 per unit.
The fixed costs will stay unchanged at 15,000 x $2 = $30,000.Therefore if X is the number of units produced, then the total cost = 14.5X + 30,000
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