This answer results from incorrectly calculating fixed and variable costs. The fixed cost is the point where the cost line on the graph crosses the vertical (Y) axis. The amount of the variable cost per warehouse is the total costs minus the fixed cost, the difference divided by the number of warehouses.
The fixed cost is calculated incorrectly in this answer. The fixed cost is the point where the cost line on the graph crosses the vertical (Y) axis.
This answer results from incorrectly calculating the variable costs. The total cost of operating 10 branch warehouses is $1,700,000, but that includes both fixed and variable costs. The amount of fixed cost should be subtracted from the total cost before dividing the difference by the number of warehouses to calculate the variable cost per warehouse.
In the formula, the constant amount represents the fixed costs. In this situation, since the total cost line intersects the vertical axis at $200,000, that is the fixed cost of operations. This leaves the company with $1,500,000 of variable costs when operating 10 branches. This gives a variable cost per branch warehouse of $150,000. Therefore, the number of branch warehouses needs to be multiplied by $150,000 and added to the fixed cost to calculate the total cost.
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