Can someone show me how this answer is 8,080 ? I keep coming up with the wrong n
ID: 2430905 • Letter: C
Question
Can someone show me how this answer is 8,080 ? I keep coming up with the wrong number. Stellar Company has the following sales, variable cost, and fixed cost. If sales increase by $10,000 then their profit increases/decreases by how much?
Sales $50,000
Variable Costs $9,600
Fixed Costs $29,000
Answer is 8,080
Calculate the total cost of FC and VC for $50,000.
2) Calculate the increase in VC based on the % increase in Sales. VC/50000 * new sales
3) Add FC and VC based on new Sales $$
4) Compare total costs for both sales levels.
Explanation / Answer
Present profit=
Sales = $50000
- Variable Cost = $9600
= Contribution = $40400
- Fixed cost = $29000
= Profit = $11400
Calculation of Profit Volume Ratio =
Contribution / Sales × 100
= $40400 / $50000 ×100 = 80.8%
Variable costs Ratio =
Variable cost / Sales ×100
$9600 / $50000 ×100 = 19.20%
If sales increase by $10000 then =
Sales ($50000 + $10000) = $60000
- Variable Cost ( $60000 × 19.20%) = $11520
= Contribution (60000 × 80.8%) = $48480
- Fixed cost = $29000
= Profit = $19480
Increase in Profit =
Profit when sales is $60000 = $19480
- Profit when sales is $50000 = $11520
Increase in Profit = $8080
Note -
Fixed cost always remain same irrespective of change in sales.
(A) Total Cost of Fixed cost and Variable cost for $50000 =
Total cost = Fixed cost + Variable Cost
= $29000 + $9600
= $38600
(B) Increase in Variable cost based on the % increase in sales =
Variable Cost on sales of $60000 =
= Variable cost / $50000 × $60000
= $9600 / $50000 × $60000
= $11520
Increase in Variable Cost =
Variable cost when
Sales is $60000 = $11520
- Sales is $50000 = $9600
Increase = $1920
(C) Total cost when sales is $60000 =
Total Cost = Variable Cost + Fixed cost
= $11520 + $29000
= $40520
(D) Total Cost for both sales =
Total cost when sales is $50000
Variable cost + Fixed cost
= $9600 + $29000
= $ 38600
Total cost when sales is $60000=
Variable cost + Fixed cost
$11520 + $29000
= $40520
Change in total costs=
When sales is $50000 = $38600
When sales is $60000 = $40520
Increase in Total cost = $1920