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ABC Company is a producer of electronic furnace air filters. A significant jump in new housing starts in the region has triggered a 25 percent

ABC Company is a producer of electronic furnace air filters. A significant jump in new housing starts in the region has triggered a 25 percent increase in orders for the filter units, especially the quality model that ABC sells for $270. Six weeks after increasing production to supply the increased orders, the production intern questions you about the following cost data:

Filter

This Month

Last Month

Change

Average total cost per unit

$167.20

$171.14

-$3.96

Cost of last unit produced (i.e., marginal cost)

$104.90

$101.22

+$3.68

In the simplest terms possible and using what you have learned about cost behavior, provide a plausible explanation of how this might occur.

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