Question

A firm expects to sell 25,500 units of its product at $16 per unit. Pretax income...

A firm expects to sell 25,500 units of its product at $16 per unit. Pretax income is predicted to be $60,500. If the variable costs per unit are $8, total fixed costs must be:

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Answer #1

Answer: $143,500

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Calculation

Sales revenue = 25,500 units x $16 = $408,000

Variable cost = 25,500 units x $8 = $204,000

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Pre-tax income = Sales revenue - Variable cost - Fixed cost

Above formula can be re-arranged as follows:

Fixed cost = Sales revenue - Variable cost - Pre-tax income

= $408,000 - $204,000 - $60,500

= $143,500

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