Question

A company currently sells 10,000 units at $9/unit and makes $20,000 accounting profit. Variable costs currently stand at $6 per unit. By how much would variable costs have to increase before the company makes zero accounting profits?a $4.00 b $1.00 c $2.00 d $3.00

Answer 1

Answer:

Option (b) $1.00

Explanation:

Data provided in the question:

Selling cost = $9/ unit

Number of units sold = 10,000

Accounting profit = $20,000

Variable costs = $6 per unit.

Now,

let x be the increase in variable cost

Account profit = Revenue - Variable cost

thus,

$20,000 = $9 × 10,000 - ($6 + x) × 10,000

or

$20,000 = ( $9 - $6 - x ) × 10,000

or

$2 = $3 - x

or

x = $1.00

hence,

Option (b) $1.00