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Hi John, could you please help me with question 7b.20 in MA Kit book?
A company’s total operating cost is semi variable. It flexes its profit budget from an output level of 1,000 units to an output level of 2,000 units?
Which of the following statements is true?
A. Operating profit will double between the two output levels.
B. Fixed cost per unit at the two output levels will be the same.
C. Total contribution will double between the two output levels.
D. Contribution per unit will increase between the two output levels.Could you please also explain the sentence “It flexes its profit budget from an output level of 1,000 units to an output level of 2,00 units?”
Thank you so much in advance.
If the original budget was based on 1,000 units, and it is then flexed to output of 2,000 units then the flexed revenue will be twice as high and the flexed total variable costs will be twice as high (so the contribution will be twice as high), but the total fixed costs will stay unchanged,
And sir In this question
Is it right to tellEven though profit wouldn’t be doubled
The profits may be increased if it’s flexed ?Given that the output has doubled, the profit will certainly increase (but it will not be double because the fixed costs will not have changed).
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