Question

A firm expects to sell 25,500 units of its product at $16 per unit. pretax income is predicted to be $60,500. if the variable costs per unit are $8, total fixed costs must be:_________

Answer 1

A firm expects to sell 25,500 units of its product at $16 per unit. pretax income is predicted to be $60,500. If variable costs are $8 per unit, total fixed costs must be $143,500.

Fixed costs are costs that stay constant no matter changes in production volume, implying that irrespective of whether output rises or decreases, total fixed costs remain constant within the relevant range.

Rent, labor, depreciation, insurance, and other fixed costs per unit fluctuate over the relevant range, on the contrary.

Given,

Selling price = $16

Variable cost per unit = $8

Units sold = 25,500

Pretax income = $60,500

$Contribution Margin = (Selling Price Per Unit - Variable Cost Per Unit) * Units Sold$

Substituting the provided information into the above calculation yields,

Contribution margin = $( 16 - 8) * 25,500 units$                                

= $204,000

Formula:

$Pretax Income = Contribution Margin - Fixed Costs$

This symbolizes,

$Fixed Costs = Contribution Margin - Pretax Income$

Substituting the provided information into the above calculation yields,

$Fixed Costs = 204,000 - 60,500$                

= $143,500

Hence, the answer is $143,500.

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