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Explanation & Answer
Total cost(TC)= Variable Cost(VC) + Fixed Cost(FC)
TC =FC + VC
y = mx + c
y - TC
m - VC
x - number of units
c - FC
Forecasted Output(x) = 10,000 units
process one:
x = 10000 unitsm = $50.00
c = $100000
therefore, TC = 50 * 10000 + 100000
= $600,000
process two
x = 10,000units
m = $30.00
c = $250,000
therefore, TC = 30*10000 + 250,000
= $550,000
since $550,000 < $600,000
therefore they used process two.
cost of producing 4000units
process one
TC = 50*4000 + 100000
= $300,000
process two
TC = 30*4000 + 250,000
= $370,000
therefore, extra cost incurred
= $370,000-$300,000
= $70,000.
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