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19 August, 20:49

A firm expects to sell 25,000 units of its product at $11 per unit. Pretax income is predicted to be $60,000. If the variable costs per unit are $5, total fixed costs must be:

A. $65,000.

B. $90,000.

C. $125.000.

D. $215,000.

E. $275,000.

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  1. 19 August, 23:21
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    B. $90,000.

    Explanation:

    Contribution margin = Selling price - variable cost

    Contribution margin = $11 - $5 = $6 per unit

    Total Contribution margin = number of units sold x contribution margin per unit = 250,00 x $6 = $150,000

    As we know that

    Pretax income = Total contribution margin - Fixed cost

    $60,000 = $150,000 - Fixed cost

    Fixed Cost = $150,000 - $60,000

    Fixed Cost = $90,000
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