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- August 30, 2023 at 11:39 am #690960
A company has single product with selling price of $12 per unit, which is calculated as variable cost per unit, plus 20%. At an output level of 5000 units it makes a loss of $8000. What is the company’s total fixed cost?

August 30, 2023 at 5:33 pm #690981Please do not simply type out a full question and expect to be provided with a full answer. You must have an answer in the same book in which you found the question, and so in future please ask about whatever it is in the answer that you are not clear about and then I will explain 🙂

For every $100 variable cost, they are adding on $20 and therefore getting a selling price of $120.

Putting it the other way round, for every $120 selling price, the variable cost must be $100 and the contribution must be $20.Therefore if the selling price is $12 per unit, the contribution must be 20/120 x $12 = $2 per unit.

If they sell 5,000 units the total contribution must be 5,000 x $2 = $10,000.

Since they made a loss of $8,000 (which is the total contribution minus the fixed costs), the fixed costs must be $18,000.

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