Question

In: Finance

Auto X firm spent $300 million in total to produce 40 000 cars this year. The...

Auto X firm spent $300 million in total to produce 40 000 cars this year. The breaks
down of $300 milion as follows: The company spent $50 million on fixed costs to run its manufacturing plants and $5000 of variable costs to produce each car. Next year assuming
that, fixed costs and variable costs will increase 10%. It plans 50 000 cars.
a-What is the current average cost per car this year?
b- What is the total forcasted cost to produce 50 000 cars next year?
c- What is the forcasted average cost per car next year?
d- What does the average cost per car vary between years?

Solutions

Expert Solution

Average cost per car = Total cost/Number of cars

= 300,000,000/40,000

= $7,500 per car

b.Forecasted cost = 50,000*5000*110% + 50,000,000*110%

= $330 million

c.Average cost per car = 330,000,000/50,000

= $6,600

d.Average cost varies since fixed costs do not increase in proportion of sales

jeff jeffy answered 2 years ago
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