assume a company incurs 100000 for total variable costs and

assume a company incurs 100,000 for total variable costs and 150000 for total fixed costs to produce 10000 units. what would the total cost be to produce 12000 units?

Solution

Total costs 10000 units 12000 units Variable costs 100000 120000 Fixed costs 150000 150000 Total cost 250000 270000 Total cost be to produce 12000 units=(12000*10)+150000= 270000 Total cost Per unit 10000 units 12000 units Variable costs 10 10.00 Fixed costs 15 12.50 Total cost 25 22.50 Total cost be to produce 12000 units= 12000*22.5= 270000 Variable costs remain constant per unit of production ,but the total variable costs vary in direct proportion to the total no. of units produced. here, at the rate of $100000/10000 units = $ 10 per unit produced. Fixed costs remain fixed over a certain range of production volume, but per unit fixed cost decreases as more & more no.of units are produced. here, the total is fixed at $ 150000--- at 10000 units level, per unit fixed cost is $ 150000/10000 units = $ 15 & at 12000 units production level,per unit fixed cost is $ 150000/12000 units = $ 12.5