Question

Last year a business had fixed costs of £875,000 and revenue of 2.5 million. The business had total variable coats of 50,000 and sold 100,000 units. Calculate the total costs of the business last year

Answer 1

Answer:

Total cost of the business = £925,000

Explanation:

Solution:

Data given:

Fixed cost = £875000

Revenue generated = 2.5 million

Total variable cost = 50,000

Units Sold = 100,000

What is the total cost of the business = ?

Formula for total cost of the business is:

Total Cost = Total Fixed Cost + (Average variable cost per unit x units produced)

Here we have, Total variable cost not the average variable cost per unit.

So,

Average variable cost per unit = Total variable cost/ units produced

Average variable cost per unit = 50,000/100,000

Average variable cost per unit = 1/2 = £0.5 per unit.

Now,

Total cost of the business = Total Fixed Cost + (Average variable cost per unit x units produced)

Let's plug in the values.

Total cost of the business = 875,000 + (0.5 x 100,000)

Total cost of the business = £925,000