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Engineering Economy: Tricky fixed cost problem

  1. Apr 30, 2015 #1
    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. jcsd
  3. Apr 30, 2015 #2
    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?
     
  4. Apr 30, 2015 #3
    Is $610 the total amount spent?
     
  5. Apr 30, 2015 #4
    At the end of the day it is, right?
     
  6. Apr 30, 2015 #5
    I think so! So my data points are ($500,5) and ($610, 15)?
     
  7. Apr 30, 2015 #6
    You got it!
     
  8. Apr 30, 2015 #7
    Awesome!! Thanks so much!!
     
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