Question

A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:
A. $65,000.
B. $90,000.
C. $125.000.
D. $215,000.
E. $275,000.

Answer 1

Answer:

B. $90,000.

Explanation:

Contribution margin = Selling price - variable cost

Contribution margin = $11 - $5 = $6 per unit

Total Contribution margin = number of units sold x contribution margin per unit = 250,00 x $6 = $150,000

As we know that

Pretax income = Total contribution margin - Fixed cost

$60,000 = $150,000 - Fixed cost

Fixed Cost = $150,000 - $60,000

Fixed Cost = $90,000