Enter the average variance cost ($) and the average non-sunk fixed cost ($) into the Calculator. The calculator will evaluate the Average non-sunk Cost curve.
Average non-sunk Cost Curve Formula
ANSC = AVC + ANFC
Variables:
- ANSC is the Average non-sunk Cost Curve ($)
- AVC is the average variance cost ($)
- ANFC is the average non-sunk fixed cost ($)
To calculate the Average non-sunk Cost Curve (shut down price), sum the average variance cost to the average non-sunk fixed costs.
How to Calculate Average non-sunk Cost Curve?
The following steps outline how to calculate the Average non-sunk Cost curve.
- First, determine the average variance cost ($).
- Next, determine the average non-sunk fixed cost ($).
- Next, gather the formula from above = ANSC = AVC + ANFC.
- Finally, calculate the Average non-sunk Cost curve.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
average variance cost ($) = 75
average non-sunk fixed cost ($) = 93
FAQs
What is the significance of calculating the Average non-sunk Cost Curve?
The Average non-sunk Cost Curve is crucial for businesses as it helps in understanding the total costs that can be avoided if production is stopped. This is essential for making informed decisions about whether to continue or cease operations, especially in the short run.
How does the Average non-sunk Cost Curve affect business decision-making?
By analyzing the Average non-sunk Cost Curve, businesses can determine the shutdown point, which is the level of output at which the business should cease production to minimize losses. This is particularly useful in scenarios where the market price does not cover the average variable costs and some portion of the fixed costs.
Can the Average non-sunk Cost Curve change over time?
Yes, the Average non-sunk Cost Curve can change over time due to variations in costs such as raw materials, labor, and overheads. Changes in production technology or efficiency can also affect the curve, making it important for businesses to regularly update their cost calculations.
Why is it important to differentiate between sunk and non-sunk costs?
Differentiating between sunk and non-sunk costs is essential because sunk costs are past costs that cannot be recovered, while non-sunk costs can be avoided in the future. Understanding this difference helps businesses make better financial decisions by focusing on costs that can actually be influenced or avoided in decision-making processes.
