Evaluating Raw Material Costs in Production

What is the average cost of raw material when production increases?

Given that the average cost of raw material is $13.71 when 11,000 units are produced, what is the average cost when production scales up to 13,000 units?

Answer:

Assuming average costs remain the same as production scales up, the average cost of raw material will stay at $13.71 per unit even when production increases from 11,000 to 13,000 units, as there's no indicated change in the cost structure that would affect this.

Economies of scale is a concept that deals with the reduction in the average cost of production as the quantity of output increases. In general, with economies of scale, costs per unit decrease as the scale of production increases due to factors like more efficient use of fixed costs.

However, in this case, the information provided does not specify that such economies of scale apply to the production of raw materials. Without specific data indicating how costs change with production scale, we must assume that the average cost of raw material remains constant regardless of the number of units produced under constant average cost conditions.

Therefore, based on the given data, the average cost of raw material will remain at $13.71 per unit even when production increases from 11,000 to 13,000 units, as there is no information suggesting a change in the average cost structure.

It's essential to evaluate the cost dynamics of raw material production to determine if economies of scale or other factors come into play when scaling up production to make informed decisions regarding cost management and production efficiency.