Freedom Mailbox produces decorative mailboxes. The company's average cost per unit is $24.43 when it produces 1,300 mailboxes.
Requirements
1. What is the total cost of producing 1,300 mailboxes?
2. If $21,359 of the total costs is fixed, what is the variable cost of producing each mailbox?
3. Write Freedom 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 1,700 mailboxes?
5. If the plant manager uses the cost equation to predict total costs, what would the forecast be for 1,700 mailboxes?
6. What is the dollar difference between your answers to questions 4 and 5? Which approach to forecasting costs is appropriate? Why?