Question

A factory produces a small electronic gadget. If the factory has fixed monthly overheads of AED 5000 and the variable cost is AED 15 per unit.     The selling price for each unit is AED 20. If the factory produces 500 units, calculate the factory's profit or loss. (Hint: if Loss give a minus sign before the calculated figure)

Answer 1

Profit = Total Revenue - Total Cost

Total revenue = Price *Quantity = 500*20 = AED 10,000

Total Cost = Total Fixed Cost + Total Variable Cost

As factory produces 500 units per month implies Total Variable Cost = Per unit variable cost*Quantity = 15*500 = AED 7500

Hence Total Variable cost = AED 7500

Total Fixed cost = AED 5000

Hence Total Cost = 5000 + 7500 = AED 12500

Hence, Profit = 10,000 - 12500 = -AED 2500

Hence Profit = AED -2500 (means it is incurring a loss of AED 2500