business

Next year, a business estimates that it will sell 25,000 units at a selling price of £12 per unit. Variable costs per unit are 1/3 of the selling price and the business estimates that the business will make a profit of £80,000. Calculate the fixed costs of the business for next year.

Reply 1

eenie_49

Original post by tillywalll

okay so looking at the question you know that generally, profit = revenue - total costs
you know that the profit at the end was 80,000. so 80 000 = revenue - total costs
next you want to calculate the revenue, you know that the formula for revenue = units sold * selling price

now to find your total costs, you can separate costs into variable and fixed costs, variable cost is 1/3 of the selling price so 1/3*12= £4
so total variable cost = units sold * variable cost since variable cost is per unit
total variable cost = 25000*£4
total costs is found by adding total variable cost with fixed cost but since you don’t know your fixed cost, we will use the variable f
so total costs = total variable cost - f

going back to the first equation,
80 000= revenue - total costs,
you can substitute your values into the equation and solve for f! remember to substitute your total costs equation in so that all of it is subtracted:
80000= revenue - (total variable cost - f)

hope that helped!