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Company has a single product with the selling price of 12 per unit which is calculated as variable cost plus 20%. At output level of 5000 units it makes a loss of 8,000 what is the total fixed cost of the product.
Ans- 18000 (in book)I used the concept of margin here.
100% revenue. 60000
(120%)cost
(20%) loss 8000So cost is 72000 , am I proceeding right? What to do further.
2) just a point of doubt .
Specific over time by the indirect labour.- Basic pay and overtime premium both are taken as direct cost?1. No you are not proceeding right!
If the variable cost is 100 then the contribution is 20 and the selling price is 120.
Therefore is the selling price is $12, the contribution is 20/120 x $12 = $2 per unit.
(variable cost of 10 plus contribution of 20% x 10 gives the selling price of $12).If they sell 5,000 units, then the total contribution is 5,000 x $2 = $10,000.
The profit is the contribution less the fixed costs, so if the profit is (8,000) then the fixed costs must be $18,000.
2. All payments to indirect labour are an indirect costs – whether basic pay or overtime pay.
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