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b)180,000
Hmm... with the assumption that total cost and other cost elements was not given to obtain the variable cost since Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC).
Hence the equation7,000X - FC = -40,000 (1) multiply by -1 will be -7,000X + FC =40,000 (3)
10,000X - FC =20,000 (2) 10,000X - FC =20,000 (2)
Add equation (3) and (2) will be -7,000X +10,000X =40,000 +20,000 thus FC will cancel out
3,000X =60,000 hence X (SP) =60,000/3,000 = $20
Putting X into any of the above equation let say (2)
10,000(20) - FC =20,000
200,000 -20,000 = FC hence FC = $180,000
In the normal process this would have been the total cost but VC cannot be computed using it with the various VC formulas example1. VC = TC - FC 2. VC = Output x variable cost per unit
3. The Change in total cost as agianst outputs at different level of production
B),
based on fomula, Profit or loss = (number of units*contibution margine per unit) - Fixed cost
(1) : -, = (* C.M) -F.C & (2): , = (0 * C.M) - F.C
Then (1) -(2) :, = C.M so, C.M per unit =
F.C =, (Total fixed cost and variable cost per unit remain constant within the relevant range)
1,80,000.
Change in quantity = (10,000 -7,000) =3,000 units.
Change in Profit =20,000 - (-40,000) = `60,000.
Therefore, unit contribution = (change in profit) / (change in output) =60,000 /3,000 = `20.
So, when output =10,000 units, total contribution =20 x10,000 = `2,00,000
Fixed Cost = Total Contribution - Profit =2,00,000 -20,000 = `1,80,000.