Doggie Pals produces 110,000 dog collars each month that give off a fresh scent to keep your dog smelling clean between baths. Total manufacturing costs are $200,000. Of this amount, $100,000 are variable costs. What are the total production costs when 125,000 collars are produced? (Assume both production levels are in the same relevant range.)

$213,636.36

Explanation:

The fixed cost is usually the same for a range of activity levels while the variable cost changes as the number of units produced or activity level changes.

Given that at a level of 110,000 dog collars, $100,000 are variable costs. Then

Variable cost per dog collar = $100,000/110,000

= $0.91

Fixed cost  = $200000 - $100000

= $100,000

Where 125,000 collars are produced,

Total production cost = $100,000 + (125,000 × 0.91)

= $213,636.36

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