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    A business sells 250 items at £75, generating a profit of £6,750 from a contribution of £35 per unit. What are its fixed costs? (3 marks)

    Can someone help me? Confused!
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    (Original post by claudiamendes)
    A business sells 250 items at £75, generating a profit of £6,750 from a contribution of £35 per unit. What are its fixed costs? (3 marks)

    Can someone help me? Confused!
    A late reply, however will give it a punt anyway:

    So:

    Total Revenue = 250 units x £75 = £18750

    Total Costs = £18750 - £6750 = £12000
    (see here, we worked out the cost by segregating the profit from the total revenue, what is left must be the total costs)

    Now, Contribution is calculated by Selling Price - Variable Cost Per Unit

    So here, £75 - £V = £35
    which implies that:
    £V = £75 - £35

    Therefore the variable costs per unit = £40

    Now if 250 units are sold, then the total variable costs can be calculated by:
    250 x £40 = £10000

    Now, looking back at earlier work we see that the total costs are £12000

    The only two things making up that figure are Fixed costs and Variable costs, therefore, the total FIXED costs:

    £12000 - £10000 = £2000

    So your answer is £2000 for the fixed costs.


    Is this question from an actual paper? It does a good job at testing your knowledge of costs and the formulae!
 
 
 
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