Question

Katz's project has fixed costs of $70,000 per year. OCF is $30,000 at 5,000 quantity of sales. If quantity sold increases from 5,000 to 5,300, what will be the new OCF after this increase in quantity of sales?

31000 |
||

32000 |
||

33000 |
||

36000 |
||

39700 |

Answer #1

In this question,OCF=$30,000 . Quantity of sales=5,000units . Fixed Cost=$70,000 . OCF=Number of units sold×(selling price/unit - variable cost/unit)-fixed cost

$30,000=5000×(selling price/unit - variable cost/unit)- $70,000

$30,000+$70,000=5000(selling price/unit - variable cost/unit)

$1,00,000=5000(selling price/unit - variable cost/unit)

(Selling price/unit - variable cost/unit)= 1,00,000÷5000

=$20/unit.

Here,the quantity sold increases to 5,300units.

Therefore,

OCF=5300×(selling price/unit - variable cost/unit)-$70,000

=5300×20 - 70,000

=$1,06000 - $70,000

=$36,000.

The present OCF when the number of units sold increases from 5,000 units to 5,300 units is $36,000.

Please do rate if it was helpful.

Thank You!

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