The information below applies to a competitive firm that sells its output for $40 per unit. • when the firm produces and sells 150 units of output, its average total cost is $24.50. • when the firm produces and sells 151 units of output, its average total cost is $24.55. refer to scenario 14-4. suppose the firm is producing 150 units of output and its fixed cost is $975. then its average variable cost amounts to a. $18.00. b. $19.60. c. $16.40. d. $17.00.

the correct answer is A. $18.00

Explanation:

The question is when the company produces 150 units so the average costs is $24.50

150 units            Average costs $24.50

151 units              Average costs $24.55

Total costs=  Units * average cost per unit (150* $24.50) = $3,675.00

Total Cost = Fixed costs + Variable costs

$3,675 = $975+ Variable costs        

Variable costs= $3,675- $975 = $2,700

Average Variable costs per unit  $2,700/150 = $18

Challenger Factory

The total factory overhead that Challenger Factory will allocate to regular widget production if budgeted production is 75,000 units and actual production for the period is 127,500 units would be:

= $795,600.

Explanation:

a) Data and Calculations:

Total budgeted factory overhead = $589,600

Total estimated direct labor hours = 376,800

Overhead rate = $589,600/376,800 = $1.56

Direct labor hours per unit of widget = 4 hours

Budgeted production of regular widgets for the period = 75,000 units

Total direct labor hours for the period = 75,000 * 4 = 300,000 hours

Actual production of regular widgets for the period = 127,500

Total direct labor hours for regular widgets = 510,000 (127,500 *4)

Total factory overhead that Challenger Factory will allocate to regular widget production if budgeted production is 75,000 units and actual production for the period is 127,500 units would be:

= 510,000 * $1.56 = $795,600