2 2 Paul\'s Pizza produced and sold 2,000 pizzas last month and had fixed costs

Question

22

Paul's Pizza produced and sold 2,000 pizzas last month and had fixed costs of $6,000. If production and sales are expected to increase by 10% next month, which of the following statements is true?

A)

Total fixed costs will decrease.

B)

Fixed cost per unit will decrease.

C)

Total fixed costs will increase.

D)

Fixed cost per unit will increase.

22

Paul's Pizza produced and sold 2,000 pizzas last month and had fixed costs of $6,000. If production and sales are expected to increase by 10% next month, which of the following statements is true?

A)

Total fixed costs will decrease.

B)

Fixed cost per unit will decrease.

C)

Total fixed costs will increase.

D)

Fixed cost per unit will increase.

Explanation / Answer

Current Fixed cost = $6000

FIxed cost per unit = 6000/2000

=$3 per unit

Expected sales next month = 1.1*6000 units

=6600 units

New fixed cost per unit = 6600/2000

=$3.3 per unit

Hence, option (D), fixed cost per unit will increase is the correct answer

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