Question

# Katz's project has fixed costs of \$70,000 per year. OCF is \$30,000 at 5,000 quantity of...

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

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.

Thank You!

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