Question

A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly and they costs $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs breakdown?

a. Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250
b. Total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250
c. Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19.250
d. Total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250

Answer 1

Fixed cost is the weekly cost of the rent payment for the factory i.e. $2,250

Variable cost can be computed as :

Variable cost = Total wages paid + Cost of raw material

Variable cost = (20 workers × 40hrs/week × $15) + ($10/unit × $500 units)

Variable cost = $17,000

∴ The Total Cost is given as:

Total Cost = Fixed Cost + Variable Cost

Total Cost = $2,250 + $17,000 = $19,250

∴ Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250

Option (a.) is correct