[Production based model solution.]
Think of manufacturing a very desirable product, "good stuff." As your
production increased you forgot to keep track of your accumulated costs
but you did keep your receipts showing you the marginal rates you were
charged for materials and labor. Based on this information, do you think
you could give your accumulated costs approximately (or exactly) at any
stage of the production? As a practical matter, this is what accountants
do in reviewing the accumulation of costs. With the information you have
retained you should be able to reproduce the accumulation of costs with
great accuracy. |
Units
produced
|
Marginal cost
$/ unit
|
0 to 5
|
4.00
|
5 to 12
|
3.50
|
12 to 20
|
3.25
|
20 to 40
|
2.00
|
40 to 50
|
3.00
|
|
Graph of Marginal Cost
per Unit Produced
|