Question

Total costs for ABC Distributing are $250,000 when the activity level is 10,000 units. If variable costs are $5 per unit, what are their fixed costs?

a) $50,000
b) $200,000
c) $150,000
d) $25,000

Answer 1

To find the fixed costs for ABC Distributing, total variable costs ($50,000) are subtracted from the total costs ($250,000), resulting in fixed costs of $200,000. This means the correct answer is option (b) $200,000.

Step-by-step explanation:

The question asks to calculate the fixed costs for ABC Distributing, given the total costs and variable costs per unit at a specific activity level. Since total costs are a sum of fixed costs and variable costs, we can calculate fixed costs by subtracting the total variable costs from the total costs.

First, we find the total variable costs by multiplying the variable cost per unit by the number of units:

Variable cost per unit = $5
Number of units = 10,000
Total variable costs = $5 × 10,000 = $50,000

Next, we subtract the total variable costs from the total costs to find the fixed costs:

Total costs = $250,000
Total variable costs = $50,000
Fixed costs = Total costs − Total variable costs = $250,000 − $50,000 = $200,000

Therefore, the fixed costs for ABC Distributing are $200,000 when the activity level is 10,000 units, which corresponds to option (b) $200,000.