Asked by virendra kumar on May 01, 2024
Verified
A company currently sells 10,000 units at $9/unit and makes $20,000 accounting profit.Variable costs currently stand at $6 per unit.What are the company's fixed costs?
A) $5,000
B) $10,000
C) $15,000
D) The company has no fixed costs
Fixed Costs
Costs that do not change with the amount of goods or services produced, such as rent, salaries, or insurance.
Accounting Profit
Profits as shown on a company’s financial statements. Accounting profit does not necessarily correspond to real or economic profit.
Variable Costs
Costs that vary directly with the level of production or a company's output, such as materials and labor.
- Compute fixed costs from total costs and variable costs.
Verified Answer
Revenue - Variable Costs - Fixed Costs = Accounting Profit
$9/unit x 10,000 units = $90,000 (Revenue)
$6/unit x 10,000 units = $60,000 (Variable Costs)
$20,000 = $90,000 - $60,000 - Fixed Costs
Rearranging this equation, we get:
Fixed Costs = Revenue - Variable Costs - Accounting Profit
Fixed Costs = $90,000 - $60,000 - $20,000
Fixed Costs = $10,000
Therefore, the best choice is B, and the company's fixed costs are $10,000.
Learning Objectives
- Compute fixed costs from total costs and variable costs.
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