The fixed cost if a small manufacturing company are #300000 .the variable costs, which are proportional to the sales are #1million.Calculate the total costs and the profit when the sales are #900000
To calculate the total costs, we need to add the fixed costs and the variable costs. The variable costs are proportional to sales, meaning that for every unit of sales, there is a constant ratio of variable costs.
Given:
Fixed costs = #300000
Variable costs = #1million (proportional to sales)
Sales = #900000
Total costs = Fixed costs + Variable costs
Variable costs = Constant ratio * Sales
Let's find the constant ratio first:
#1million = Constant ratio * #900000
Constant ratio = #1million / #900000
= 1.1111
Variable costs = Constant ratio * Sales
= 1.1111 * #900000
= #1000000
Total costs = Fixed costs + Variable costs
= #300000 + #1000000
= #1300000
To find the profit, subtract the total costs from sales:
Profit = Sales - Total costs
= #900000 - #1300000
= -#400000
The profit when the sales are #900000 is -#400000. Since the profit is negative, it means that the company incurs a loss of #400000.