How to work this problem please. Q 19.22: Last month, Sprockets, Inc., manufactu

Question

How to work this problem please.

Q 19.22: Last month, Sprockets, Inc., manufactured 12,000 widgets. The firm's total cost for making the widgets was $240,000. Of that amount, $60,000 was due to fixed costs, and the rest was due to variable costs. Next month, Sprockets expects to manufacture 15,000 widgets. Assuming the firm's monthly fixed costs and variable cost per unit remain the same, which of the following statements is accurate? A Sprockets' average fixed cost per widget will drop to $3, and its total manufacturing costs wi remain constant at $240,000 B Sprockets' average fixed cost per widget will drop to $4, and its total manufacturing costs will increase to $285,000. C Sprockets' average fixed cost per widget will remain at $5, and its total manufacturing costs will increase to $285,000. Sprockets' average fixed cost per widget will drop to $3, and its total manufacturing costs will increase to $360,000. D

Explanation / Answer

Solution: Sprockets'average fixed cost per widget will drop to $4, and its total manufacturing costs will increase to $285,000

Working:

When widgets are 12,000: FC=60,000; VC = 180,000

FC per unit= 60,000 / 12000 = 5 per unit;

VC per unit = 180,000 / 12,000 = 15 per unit

When widgets are 15,000:

FC=60,000;

VC = 15,000*15 = 225,000

TC = 225,000 + 60,000 = 285,000

FC per unit= 60,000 / 15000 = 4 per unit;

VC per unit = 225,000 / 15,000 = 15 per unit

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