Production Investment Analysis in the Spirits Industry

What is the average fixed cost at production level of 200 thousand bottles per year?

a. $3

b. $20

c. $23

d. $10

Answer: Option (b) is correct.

Answer:

Given that the fixed cost is $4 million, the variable cost (labor and material) is $3 per bottle, and the production level is 200,000 bottles per year, we can calculate the average fixed cost as follows:

The average fixed cost is determined by dividing the total fixed cost by the production level. In this case:

Average fixed cost at 200,000 bottles per year:

Fixed cost ÷ Production level = $4,000,000 ÷ 200,000 = $20

Therefore, the average fixed cost at a production level of 200,000 bottles per year is $20.