Home › ACCA › Management Accounting › Cost Volume Profit Analysis › Ingredients for a pizza cost $3. What happens to…
Ingredients for a pizza cost $3. What happens to that variable cost as the number of pizzas sold rises from 200 to 800?
ACost per pizza stays at $3 and the total rises
BCost per pizza falls and the total stays fixed
CCost per pizza rises and the total also rises
DCost per pizza stays at $3 and the total falls
Answer & Solution
Correct answer: A. Cost per pizza stays at $3 and the total rises
1. A variable cost is incurred once for every unit sold, so the per unit amount does not move with volume.
2. At 200 pizzas the total variable cost is 200 times $3, which is $600.
3. At 800 pizzas the total variable cost is 800 times $3, which is $2,400.
4. The rate stays at $3 while the total rises, which is the defining behaviour of a variable cost.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 5.1 Introduction_
Related questions
A firm below its break-even point is making a loss because contribution margin has not yetRaising the selling price while holding variable cost constant changes the contribution maFixed costs of 13,500 dollars and a contribution margin of 60 dollars per unit give a breaA product selling for 100 dollars with a 60 dollar contribution margin has a contribution A birdbath selling for 100 dollars with 40 dollars of variable cost has a contribution marThe contribution margin ratio tells you what percentage of the selling price exceeds:Contribution margin per unit is available to cover which costs first?A cost that rises by a set amount for each additional unit made is: