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2 June, 21:39

A company currently sells 10,000 units at $9/unit and makes $20,000 accounting profit. Variable costs currently stand at $6 per unit. By how much would variable costs have to increase before the company makes zero accounting profits? a $4.00 b $1.00 c $2.00 d $3.00

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  1. 2 June, 23:20
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    Option (b) $1.00

    Explanation:

    Data provided in the question:

    Selling cost = $9 / unit

    Number of units sold = 10,000

    Accounting profit = $20,000

    Variable costs = $6 per unit.

    Now,

    let x be the increase in variable cost

    Account profit = Revenue - Variable cost

    thus,

    $20,000 = $9 * 10,000 - ($6 + x) * 10,000

    or

    $20,000 = ($9 - $6 - x) * 10,000

    or

    $2 = $3 - x

    or

    x = $1.00

    hence,

    Option (b) $1.00
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