Question 3 Computations for fixed and varlable costs At curr

Question 3: Computations for fixed and varlable costs At current sales volume of 100 units, fixed costs (FC) are $3 per unit and varlable costs (VC) are $7 per unit. a) Compute total fixed costs at current sales volume total FC b) Suppose that sales volume increases to 125 units. At this new volume, total FC FC per unit - VC per unit = total VC = | c) Write down the total cost equation: *volume (e.g., if TC=500+2-volume, enter 500 in the first box and 2 in the second box) Predict total costs at sales volume of 80 units: Predict total costs at sales volume of 120 units: d) When sales volume increases by 1 unit, total costs increase by unit VC = $7 increase by unit FC $3 2) increase by unit cost = $10 not enough information

Solution

a) Total Fixed Cost = $ 3 x 100 units = $ 300

b) Total Fixed Cost = $ 300 ; Fixed cost per unit = $ 300 / 125 = $ 2.4 ; Variable cost per unit = $ 7

Total Variable cost = $ 7 x 125units = $ 875

c ) Total Cost = $ 300 + $ 7 x Volume

Sales Volume at 80 units = $ 300 + $ 7 x 80 = $ 860

Sales Volume at 120 units = $ 300 + $ 7 x 120 = $ 1140

d ) Increase by unit VC = $ 7