Material 30
Labour 18
VOH 14
FOH 23
Demand 20000
A discount of 3 per unit on material is offered from the supplier if a purchase is made for 22000 units.
Required Tc=? + ? Q
Answer= Variable cost = (30-3+18+14) =59
Fixed cost = 23*22000=506000
My Answer is TC=506000+59Q but this is wrong, and the correct answer is TC+460,000+59Q
Please help understanding in that why the fixed cost is not considering the increased units and correct answer is calculating Fixed Cost as FC=20000*23=460,000 or is it a mistake in answer book?
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Pricing
7y ago#1There is no mistake in your answer book.
Assuming that the first table of figure that you have listed are the budgeted figures, then they have budgeted on fixed costs being 20,000 x 23 = $460,000.
By definition, fixed costs do not change with the level of production and so the fixed costs will remain at $460,000 regardless of how many they actually produce.
If needed, then do watch the free Paper MA lectures on fixed and variable costs, because this is revision of Paper MA (was Paper F2).
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