Franks Weiner FActory has the following costs Weiner Machine

Franks Weiner FActory has the following costs:

Weiner Machine: $1000

Hog parts: $50/1000lb

Chicken Parts: $75/1000 lb

Beef Parts: $100/1000 lb

\"other\" parts: $10/1000 lb.

Each weiner is made with equal parts Hog/Chicken/beef/other.

If he produces 2000 pounds of weiners, what is the average variable cost (per pound)

Multiple choice

a) $1.235

b) $.235

c) $.24

d) Not enough information

Solution

Option (b).

Hog, Chicken, Beef & Other parts are the variable costs.

Total variable cost for 1,000 lb = $(50 + 75 + 100 + 10) = $235

So, Total variable cost for 2,000 lb = $235 x (2,000 / 1,000) = $470

Average variable cost = $470 / 2,000 = $0.235