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CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production

A Pune bakery has total fixed cost of Rs 12,000 per month. At an output of 400 loaves, total variable cost is Rs 20,000. What is the average total cost per loaf at this output?

Average total cost is Rs 80 per loaf. Total cost is fixed cost Rs 12,000 plus variable cost Rs 20,000, which equals Rs 32,000, and dividing this by 400 loaves gives Rs 80. Using only variable cost would wrongly give Rs 50.

  1. ARs 30
  2. BRs 50
  3. CRs 80Correct
  4. DRs 20

Explanation

Total cost = 12,000 + 20,000 = Rs 32,000. Average total cost = 32,000 / 400 = Rs 80. Rs 50 is only the average variable cost (20,000/400), and Rs 30 is only the average fixed cost (12,000/400); both omit one component.

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