CA Foundation · Business Economics · Theory of Production and Cost
A textile factory has the following cost structure: Fixed costs = ₹50,000 per month; Variable cost per unit = ₹200. If the factory produces 500 units, what is the average total cost per unit?
Average total cost is ₹300 per unit. This is calculated by dividing total cost of ₹150,000 (₹50,000 fixed plus ₹100,000 variable) by 500 units of production.
- A₹100
- B₹200
- C₹300Correct
- D₹250
Explanation
Average total cost (ATC) = Total Cost / Quantity. Total Cost = Fixed Cost + (Variable Cost per unit × Quantity) = 50,000 + (200 × 500) = 50,000 + 100,000 = 150,000. ATC = 150,000 / 500 = ₹300. A common mistake is choosing ₹200 (only variable cost) or ₹250 (if wrongly calculating fixed cost contribution).
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