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Hello
Could you kindly help me to understand below question? I cannot see the logic to get to the answer.
A company has a simple product with a selling price of $ 12 per unit, which is calculated as variable cost per unit plus 20%. As an output level of 5,000 units it makes a loss of $8,000.
What is the company fixed cost?Correct answer $18,000
Thanks
Gabbi
The variable cost must be $10 per unit.
So the contribution per unit must be $2.
So the total contribution for output of 5,000 units must be $10,000.
Since there is a loss of $8000, the fixed costs must be $18,000.
Dear Mr Moffat
Thanks for your reply. Just another thing. Why do we need to had the loss of $8,000 to get the total fixed cost? Does the loss represent the under absorption of fixed cost?
Thanks
Gabry
@gabbi08 said:
Dear Mr MoffatThanks for your reply. Just another thing. Why do we need to had the loss of $8,000 to get the total fixed cost?
Thanks
Gabry
Gabry – why have you repeated the same question in this way?
If the reason you repeated it was to get me to answer faster, then please do not – I cannot sit at the computer permanently. We promise to reply within 48 hours and I always reply well within 24 hours.The loss has nothing to do with under or over absorption.
The profit or loss is always the contribution less the fixed costs.
I am sorry, I only had a small problem with the computer. It was not my intention folowing up and asking to reply the question immediately. I do Know the rule and I respect all the work that you do for us.
Thanks for the reply.
Gabbi
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