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Variable cost is $12 per unit. In the busiest month 2,900 units were sold at a total cost of $69,800. What are the fixed costs?
A$21,600
B$34,800
C$48,200
D$35,000
Answer & Solution
Correct answer: D. $35,000
1. Fixed cost equals total cost minus total variable cost for the same month.
2. Total variable cost is $12 per unit times 2,900 units, which is $34,800.
3. $69,800 minus $34,800 gives $35,000 of fixed cost.
4. The quiet month proves the same answer: $48,200 minus $12 times 1,100 units gives $48,200 minus $13,200, which is $35,000.
5. $34,800 is the variable half of the busy month, not the fixed remainder.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 5.1 Introduction_
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