# Engineering Economy: Tricky fixed cost problem

1. Apr 30, 2015

### jdawg

1. The problem statement, all variables and given/known data
John pays $500 to a tailor for a regular supply of new shirts. The tailor delivers 5 black shirts. He next wants to purchase 10 red shirts at the contract rate of$11 per shirt. For the black and the red shirts together, what are the fixed and variable cost of the shirts? John's discount rate is 12%.
2. Relevant equations

3. The attempt at a solution

Hi! So I'm having a lot of trouble with this problem. The first time I attempted this problem I assumed that the fixed cost was $500 and tried applying the discount rate to the$11 per red shirt and multiplying by 10. This was completely wrong. I think the discount rate is thrown in there to confuse me.
What I'm supposed to do is find two data points and then use y=mx+b to find the fixed and variable cost. But how do I find the data points?

Can I just do this?:

($500,5) ($110,10) (I multiplied 10*$11) But I think this gives me a negative marginal cost... Which means this is wrong also. Last edited by a moderator: Apr 30, 2015 2. Apr 30, 2015 ### paisiello2 I agree that the discount rate is not applicable here. I think you have the right idea assuming a linear variable cost relationship. Just need to plug in the right numbers. At the end of the day, what is the total money spent by John? 3. Apr 30, 2015 ### jdawg Is$610 the total amount spent?

4. Apr 30, 2015

### paisiello2

At the end of the day it is, right?

5. Apr 30, 2015

### jdawg

I think so! So my data points are ($500,5) and ($610, 15)?

6. Apr 30, 2015

### paisiello2

You got it!

7. Apr 30, 2015

### jdawg

Awesome!! Thanks so much!!