Question

Betty spends $100,000 to buy a small storefront building in Downtown Des Moines. She is an artist and wants to make artistic designs and then screen prints her designs onto t-shirts. She spends $10,000 on a large screen printing machine. Each time she Prince a t-shirt, she spends $4 on the plain T-shirt because she wants to use organic cotton shirts. The ink for each shirt costs $1 and she estimates that her labor cost for the production of one shirt is $1. What is the average total cost of producing 200 t-shirts?

Answer 1

(Total fixed costs + Total variable costs) / Number of units produced = Average total cost

Total fixed costs =

Building cost = $100,000

Printing machine = $10,000

Total fixed cost = $110,000

Variable costs for 200 t-shirts =

Printing cost = $4 (200)= $800

Ink cost = $1 (200) = $200

Labor cost = $1 (200) = $200

Total variable cost = $1200

Total cost = $110,000 +  $1200 = $111,200

Total average total cost = Total cost/quantity

=  $111,200/200 = $556