A. Develop a cost equation on the following: Franklin Foods has current year costs consisting of...

A. Develop a cost equation on the following: Franklin Foods has current year costs consisting of $5 per unit Variable Costs and $10,000 in Fixed Costs. Assume that Franklin Foods and a major supplier have entered into a partnership that will result in a per-unit decrease in Franklin's variable cost of $0.75 next year. The company will also be able to reduce their annual leasing costs by 25%. What is the new cost equation, and what will be the estimated total costs if production is estimated to be 13,500 units next year? Explain your findings.

B. Explain the differences between fixed, variable, and mixed costs.

Expert Solution

Total Cost = Fixed Cost + Variable Cost

Current Year Total Cost = $10000 + $S*No. of units produced

Next Year Total Cost = $7500 + $4.25*13500 = $64875

^Current year production not provided.

^^ Due to decrease in variable cost by $0.75 per unit new variable cost would be = $5-$.75=$4.25

^^^ In next year company will be able to reduce 25% on their annual leasing cost so we assume current year Fixed cost as total lease cost which is fixed.

Fixed Cost : Fixed cost is a cost in total which remain same and it’s impact are as below:

If production is more than the decide production then fixed cost per unit decreases.

And if production is less than the decide production then fixed cost per unit increases.

Variable cost : It remain same for each unit, its price per unit not affect if production increases or decreases from decided units.

Mixed Cost : It is a cost in which few portion is remain fixed and remaining portion is variable.

ekkarill92 answered 1 month ago

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