Chloe’s Cafe bakes croissants that it sells to local restaurants and grocery stores. The average costs...

Chloe’s Cafe bakes croissants that it sells to local restaurants and grocery stores. The average costs to bake the croissants are $0.30 for 3,100 and $0.25 for 6,200. Required: If the total cost function for croissants is linear, what will be the average cost to bake 5,400? (Do not round intermediate calculations. Round your final answer to 4 decimal places.)

Average Cost =

Expert Solution

Working

>Total cost for 3100 units = 3100 x $ 0.30 = $ 930

>Total cost for 6200 units = 6200 x $ 0.25 = $ 1,550

Using High Low Method to classify Variable and Fixed components

	Units	Cost
High Level	6,200	$ 1,550.00
Low Level	3,100	$ 930.00
Difference	3,100	$ 620.00

A	Difference in Cost	$ 620.00
B	Difference in units	3,100
C = A/B	Variable cost per unit	$ 0.20

Working		High Level	Low Level
A	Total Cost	$ 1,550.00	$ 930.00
B	Total Units	6200	3100
C	Variable cost per unit	$ 0.20	$ 0.20
D = B x C	Total Variable cost	$ 1,240.00	$ 620.00
E = A - D	Total Fixed Cost	$ 310.00	$ 310.00

Requirement: Average Cost to make 5400 units

Total Cost for 5400 units = $ 310 Fixed Cost + ($0.20 x 5400) Variable cost
= 310 + 1080
= $ 1,390

Average Cost = $ 1390 / 5400 units = $ 0.2574

Correct Answer = $ 0.2574

ekkarill92 answered 7 months ago

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