Question

When they produce 20,000 units per month, Sanders Incorporated has variable costs of $392,000 and fixed costs of $242,000. If Sanders increases their production to 25,000 units, by how much will they have to increase their budget?
A : $98,000
B : $158,500
C : $490,000
D : $792,500

Answer 1

Answer:

increased in budget = $98000

correct option is A $98000

Explanation:

given data

produce = 20,000 units per month

variable costs = $392,000

fixed costs = $242,000

increases production = 25,000 units

to find out

how much will they have to increase their budget

solution

we get here total cost or present budget that is

total cost = variable cost + fixed cost

total cost = $392000 + $242000

total cost = $634000

and

variable cost per unit will be here

variable cost per unit = $\frac{variable\ costs}{produce}$

variable cost per unit = $\frac{392000}{20000}$

variable cost per unit = 19.6

and

variable cost for increased production = increases production × variable cost per unit  

variable cost for increased production = 25000 × 19.6

variable cost for increased production = 490000

and

total cost of increased production = fixed cost + variable cost for increased production

total cost of increased production = $242000 + $490000

total cost of increased production = $732000

and

increased in budget = $732000 - $634000

increased in budget = $98000

correct option is A $98000