Question

Dillaway Manufacturing Company believes they can sell 1,000 of a certain product for $80 each. If the fixed cost of producing the product is $20,000 and the variable cost is$40 per item, how much would the profit be?$18,000$20,000$22,000$24,000None of these choices are correct.

Answer 1

Quantity: 1,000 items

Price: $80 per item

Fixed cost: $20,000

Variable cost: $40 per item

The fixed cost stays the same, the total variable cost is:

Total variable cost (TVC) = variable cost * quantity

TVC = $40 * 1,000 = $40,000

Total costs = TVC + Fixed costs = $40,000 + $20,000 = $60,000

Te income is:

Income = price * quantity = $80 * 1,000 = $80,000

The profit is income minus total costs:

Profit = income - total costs = $80,000 - $60,000 = $20,000

Profit = $20,000