Tour Racing Bicycles, Inc. has gathered the following cost and activity level information:
Average total cost per unit $250.00
Production level used to calculate average cost 1,000
Total fixed costs $75,000
a. What is the total cost of producing 1,000 racing bicycles? ____________________
b. What is the variable cost of producing each racing bicycle? ____________________
c. Suppose the company uses the average cost of $250 to predict total costs. What total cost would the company calculate for 2,500 racing bicycles? ________________________
d. If the company uses the cost equation to predict total costs, what total cost would the company calculate for 2,500 racing bicycles? _____________________
e. Is there a difference between the forecasted total cost using average cost versus the cost equation for production of 2,500 racing bicycles? If there is a difference, which is the more accurate projection, and why?