In a slow year, Deutsche Burgers will produce 3.200 million hamburgers at a total cost of...

In a slow year, Deutsche Burgers will produce 3.200 million hamburgers at a total cost of $4.600 million. In a good year, it can produce 6.200 million hamburgers at a total cost of $6.400 million. a. What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.) b. What is the variable cost per hamburger? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What is the average cost per burger when the firm produces 3 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is the average cost per burger when the firm produces 4 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. Why is the average cost lower when more burgers are produced? The fixed costs are spread across more burgers. Variable costs are lower per burger. Fixed costs are constant per burger. rev: 09_25_2017_QC_CS-101934 Next Visit question mapQuestion 1 of 6 Total 1

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Expert Solution

we will use High Low Method to identify variable and fixed cost

Variable cost per hamburger=$6.400 million-$4.600 million/6.200 million hamburgers- 3.200 million hamburgers

=$1.8million/3million hamburgers

=$.6 per hamburger

fixed cost= $6.400 million-(6.200 million hamburgers*$.6 per hamburger)

=$2.68 million

Average cost per burger when the firm produces 3 million hamburgers

variable cost shall be 3 million hamburgers*$.6 per hamburger

=$1.8 million

+fixed cost $2.68 million

total cost=$4.48 million

average cost= total cost/total units

= $4.48 million/ 3 million hamburgers

=$1.49 per hamburger

average cost per burger when the firm produces 4 million hamburgers

variable cost shall be 4 million hamburgers*$.6 per hamburger

=$2.4 million

+fixed cost $2.68 million

total cost=$5.08 million

average cost= total cost/total units

= $5.08 million/ 4 million hamburgers

=$1.27 per hamburger

why is the average cost lower when more burgers are produced?

because fixed cost element is same in both the cases and in the latter case it is spread among 4 million hamburgers instead of 3 million hamburgers thereby reducing the average cost per hamburger.

jeff jeffy answered 1 year ago

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