the cost structure of a chair maker is the following total f

the cost structure of a chair maker is the following: total fixed cost=$1,000 and it cost 10 dollars to produce each chair, what is the cost/unit if 100 chairs are produced, and what is the cost /unit if 1000 chairs are produced. what cost mechanism does the company use to achieve cost leadership position?

Solution

Total fixed cost = 1000

additional cost = 10 per each chair

a) if 100 chairs are produced ,then total cost = 1000 + 100 *10 = 2000

so cost/unit = 2000/100 = 20

b) if 1000 chairs are produced ,then total cost = 1000+ 1000*10 = 11000

so cost /unit = 11000/ 1000 = 11

we see that as number of chairs produced increases ,cost per unit dcreases ,