Managerial Account Question

The Haverford Company is considering three types of plants to make a particular
electronic device. Plant A is much more highly automated than plant B, which in turn is
more highly automated than plant C. For each type of plant average variable cost so long
as output is less than capacity, which is the maximum output of the plant. The cost
structure for each type of plant is as follows:
Average Variable Costs
Plant A
Plant B
Plant C
Labor
$1.10
2.40
$3.70
Materials
0.90
1.20
1.80
Other
0.50
2.40
2.00
Total
$2.50
$6.00
$7.50
Total fixed costs
$300,000
$75,000
$25,000
Annual capacity
200,000
100,000
50,000
a. Derive the average costs of producing 100,000, 200,000, 300,000, and
400,000 devices per year with plant A. (For output exceeding the capacity of
a single plant, assume that more than one plant of this type is built.)
b. Derive the average costs of producing 100,000, 200,000, 300,000, and
400,000 devices per year with plant B.
c. Derive the average costs of producing 100,000, 200,000, 300,000 and 400,000
devices per year with plant C.
d. Using the results of parts (a) through (c), plot the points on the long-run
average cost curve for the production of these electronic devices for outputs of

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