Problem: Measer Enterprises produces standard telephone key pads. The firm operates in a highly competitive market in which the keypads are sold for $4.50 each. Du tto the nature of the production technology the firm can produce only between 10,000 and 13,000 units per month in fixed increments of 1,000 units Measer has the following cost structure:
Rate of Production and Sales
10,000 11,000 12,000 13,000
Factory Cost Variable 37,000 40,800 44,600 48,400
Factory Cost Fixed 9,000 9,000 9,000 9,000
Selling Cost Fixed 6,000 6,600 7,400 8,200
Adminstration, Fixed 6,000 6,000 6,000 6,000
Total 58,000 62,400 67,000 71,600
Average Unit Cost
Average Unit 5.8 5.67 5.58 5.51