Question 3: Computations for fixed and variable costs At current sales volume of

Question

Question 3: Computations for fixed and variable costs At current sales volume of 100 units, fixed costs (FC) are $5 per unit and variable costs (VC) are $7 per unit. a) Compute total fixed costs at current sales volume total FC-500 b) Suppose that sales volume increases to 125 units. At this new volume, total FC- FC per unit VC per unit total VC875 c) Write down the total cost equation: TC (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: x + Xvolume d) When sales volume increases by 1 unit, total costs increase by unit vC $7 increase by unit FC $5 increase by unit cost $12 O not enough information

Explanation / Answer

Answer b.

Sales Volume = 125 units

Total FC = $500

FC per unit = Total FC / Sales Volume
FC per unit = $500 / 125
FC per unit = $4

VC per unit = $7

Total VC = VC per unit * Sales Volume
Total VC = $7 * 125
Total VC = $875

Answer c.

TC = FC + VC per unit * Volume
TC = $500 + $7 * Volume

If sales volume is 80 units:

TC = $500 + $7 * 80
TC = $1,060

If sales volume is 120 units:

TC = $500 + $7 * 120
TC = $1,340

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