A Slow Year: Deutsche Burgers Will Produce 38 Million Hambur

Question

A Slow Year Deutsche Burgers Will Produce 38 Million Hamburgers In a slow year, Deutsche Burgers will produce 3.8 million hamburgers at a total cost of $5.4 million. In a good year, it can produce 5.8 million hamburgers at a total cost of $6.5 million. a. What are the fixed costs of hamburger production? b. What is the variable cost per hamburger? c. What is the average cost per burger when the firm produces 3 million hamburgers? d. What is the average cost per burger when the firm produces 4 million hamburgers? e. Why is the average cost lower when more burgers are produced?

Dr. Jack HW Helper · Accepted Answer

Introduction The analysis of production costs is fundamental in managerial accounting and economic decision-making. Fixed costs, variable costs, and average costs influence pricing strategies, output levels, and profitability. This paper examines a hypothetical scenario involving Deutsche Burgers to analyze and compute fixed costs, variable costs per unit, and average costs at different production levels. Additionally, it explores the economic rationale behind the reduction in average costs as output increases. Fixed Costs of Hamburger Production Fixed costs are expenses that do not change with the level of production; they are incurred regardless of output. To determine fixed costs, we utilize the data provided for two different production levels: - Slow year: 3.8 million hamburgers at a total cost of $5.4 million - Good year: 5.8 million hamburgers at a total cost of $6.5 million Let FC denote fixed costs, and VC per burger denote variable cost per unit. The total cost (TC) can be expressed as: $$ TC = FC + VC \times Q $$ Where $ Q $ is the quantity produced. Using the two points: $$ \begin{cases} 5.4 = FC + VC \times 3.8 \ 6.5 = FC + VC \times 5.8 \end{cases} $$ Subtracting the first from the second: $$ (6.5 - 5.4) = VC (5.8 - 3.8) \Rightarrow 1.1 = VC \times 2 $$ $$ VC = \frac{1.1}{2} = 0.55 \text{ million dollars per million hamburgers} $$ Calculating fixed costs using either point: $$ 5.4 = FC + 0.55 \times 3.8 $$ $$ 5.4 = FC + 0.55 \times 3.8 \Rightarrow 0.55 \times 3.8 = 2.09 $$ $$ FC = 5.4 - 2.09 = 3.31 \text{ million dollars} $$ Answer: - Fixed cost $ \approx $ \$3.3 million Variable Cost Per Hamburger From the calculation above: $$ VC = \$0.55 \text{ million per million hamburgers} $$ Since production is measured in millions: $$ VC = \$0.55 \text{ million} / 1,000,000 = \$0.55 $$ Alternatively, on a per hamburger basis: $$ VC_{per} = \$0.55 \text{ per hamburger} $$ Expressed in dollars: $$ \$0.55 \text{ per hamburger} $$ Answer: - Variable cost per b

A Slow Year: Deutsche Burgers Will Produce 38 Million Hambur

A Slow Year Deutsche Burgers Will Produce 38 Million Hamburgers

Paper For Above instruction

Introduction

Fixed Costs of Hamburger Production

Variable Cost Per Hamburger

Average Cost When Producing 3 Million Hamburgers

Average Cost When Producing 4 Million Hamburgers

Why Is the Average Cost Lower When More Burgers Are Produced?

Conclusion

References