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 8000
So 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?
Ask the Tutor ACCA MA
Fixed cost
6y ago#11. 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.
Thankyou sir
6y ago#3You are welcome :-)
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