The Controller for Andy's Bicycles Has Gathered the Following Cost

question 54

Essay

The controller for Andy's Bicycles has gathered the following cost and activity level information:
a. What is the total cost of producing 1,000 racing bicycles?
b. What is the variable cost of producing each racing bicycle?
c. Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles?
d. If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 racing bicycles?
e. Is there a difference between the forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference?

---

Definitions:

Frequency Theory

The theory that the pitch of a sound is reflected in the frequency of the neural impulses that are generated in response to the sound.

Neural Impulses

The electrochemical discharge of a nerve cell or neuron.

Color Consistency

The perceptual feature that allows the human brain to recognize colors of objects under varying lighting conditions as being consistent.

Law of Common Fate

A principle in Gestalt psychology suggesting that elements moving in the same direction are perceived as more related than elements moving in different directions or at different speeds.