Question

Suppose a company has $200 in fixed costs and $40 per unit in variable costs. The company sold 10 items for a total of $1,000. How much of a net profit or loss did this sale produce?

Answer 1

The $400 is the net profit.

Step-by-step explanation:

For computing the net profit we apply the equation which is shown below:

Net profit = Sales - variable cost - fixed cost

where,

Sales is $1,000

Variable cost = variable cost per unit × number of unit = $40 × 10 = $400

And we know that sales - variable cost = contribution

So, contribution would be $1000 - $400 = $600

And, the fixed cost is $200

So, the profit would be = Contribution - fixed cost

= $600 - $200

= $400

Hence, the $400 is the net profit.