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Average fixed cost (AFC) is obtained by dividing total fixed costs by the level of production. The formula is:
AFC=TCF / Out-Put quantity.
Fixed costs per unit come down as production increases, which is a demonstration of economies of scale. For instance, if a firm has fixed costs of $10000 and creates 1000 units then AFC=>$10. With 2000 units produced, the AFC falls to 5. This idea enables enterprises to learn about cost behavior and production levels. A better profitability and competitive pricing can be achieved in the long term through lower AFC.
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AFC=TCF / Out-Put quantity.
Fixed costs per unit come down as production increases, which is a demonstration of economies of scale. For instance, if a firm has fixed costs of $10000 and creates 1000 units then AFC=>$10. With 2000 units produced, the AFC falls to 5. This idea enables enterprises to learn about cost behavior and production levels. A better profitability and competitive pricing can be achieved in the long term through lower AFC.
Visit us: https://accountinglads.com/fixed-cost/