Question

Assume a sales prise per unit of $25. variable cost per unit $15, and total fixed costs of $20880. If no units are sold, how much cost would the company incur? The amount of variable costs at the breakeven point. $31320 O $20880 Sveforster Attempts: 0 of 1 used Submit Answer

Answer 1

Given details are:

Sale Price per unit= $25

Variable Cost per unit = $15

Fixed Cost = $20880

Analysis:

Here, Sale price and variable costs are unit level cost and these costs will be incurrerd for every unit produced.

When it comes to fixed cost of $20880 is Non unit level cost and will be incurred irrespective of production and sales.

Then, let us analyse the options given.

First option: the amount of variable costs at the breakeven point: In question, it is given that no units are sold. Breakeven point means, the level of sales units at which the profit is Zero. As there are no units are sold, there is no point of Breakeven arises. Thus, this is not the correct answer.

Second option: costs incurrered by the company is Zero: This option is not correct. It is because of the reason that, eventhough the company do not produce and sale any units, it shuld incurr fixed costs as it is unavoidable unlelss the company becoms inoperative. Thus, the company should incurr fixed cost of $20880 whether or not it produces and sell the units.

Third option : $31320 : It is irrelevent

Forth option : $20880 : As per the reasoning given in above options, this option is correct and company incurres Fixed cost of $20880 as it is non unit level cost and should be incurred irrespective of production and sale.

Correct Answer : Forth Option = $20880