Managerial Accounting Total Variable Costs = # Essay

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Managerial Accounting

Total variable costs = # of workers * daily wage + other variable costs

TVC = (50,000*80) + 400,000

TVC = $4,400,000

Average variable cost = TVC / units of output

AVC = $4,400,000 / 200,000

AVC = $

Average Total cost = (TVC + TFC) / units of output

ATC = ($4,400,000 + $1,000,000) / 200,000

ATC = $

Worker Productivity = units of output / number of workers

WP = 200,000 / 50,000

WP = 4

The total and average variable costs do not change if there is a change in the fixed costs so, nor does worker productivity:

TVC = $4,400,000

AVC = $

WP = 4

The average total cost does change.

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The new figure for average total cost is:

ATC = ($4,400,000 + 3,000,000) / 200,000

ATC = $

Under the first scenario the profit is calculated as follows:

Profit = Revenue -- VC -- FC

P = (200,000 * 25) -- (4,400,000) -- (1,000,000)

P = 5,000,000 -- (5,400,000)

P = (400,000)

For the second scenario, the loss is even larger:

P = (5,000,000) -- (7,400,000)

P = (2,400,000)

Under neither of these scenarios should the firm.....

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