An inspection service received their monthly operating costs for the past year. Costs ranged from
$4,000. for 1,000 inspected units to $36,000. for 600 inspections. 1. Calculate the variable cost
per inspection. 2. Calculate the total fixed costs. 3. Write the equation and calculate operating
costs for 800 inspections. ($3,800) 4. Draw a graph illustrating the total costs under this plan.
Label the axes and show the costs at 600, 800, and 1,000 inspections.
Solution
1.
Variable cost per inspection = Change in cost / Change in inspected units
= ($4,000 - $3,600) / (1,000 – 600)
= $400 / 400
= $1 (Answer)
2.
Total fixed cost = Total cost for 1,000 units – Total variable cost for 1,000 units
= $4,000 – ($1 × 1,000)
= $4,000 - $1,000
= $3,000 (Answer)
3.
Operating cost equation = Fixed cost + Variable cost
Operating cost for 800 inspections = Fixed cost + Variable cost
= $3,000 + ($1 × 800)

= $3,000 + $800
= $3,800 (Answer)