Question
A company's budgeted cost of supplies when 5,000 units are sold is $7,500 of fixed costs plus $1.25 variable cost per unit. What is the increase in the total cost of supplies if 350 more units are sold than expected?
Multiple choice question.
The cost remains the same.
$962.50
$437.50
Multiple choice question.
The cost remains the same.
$962.50
$437.50
Answers
GPT-4o mini
To calculate the increase in the total cost of supplies when 350 more units are sold, we first need to determine the total variable cost for the additional units.
The variable cost per unit is $1.25. Therefore, for 350 additional units, the increase in variable cost would be calculated as follows:
\[
\text{Increase in Variable Cost} = \text{Variable Cost per Unit} \times \text{Additional Units}
\]
\[
\text{Increase in Variable Cost} = 1.25 \times 350 = 437.50
\]
The fixed costs ($7,500) remain the same regardless of the number of units sold, so the total cost of supplies does not change due to fixed costs. Therefore, the only cost that will increase with the additional units is the variable cost.
Thus, the increase in the total cost of supplies when 350 more units are sold is **$437.50**.
The correct answer is:
**$437.50**
The variable cost per unit is $1.25. Therefore, for 350 additional units, the increase in variable cost would be calculated as follows:
\[
\text{Increase in Variable Cost} = \text{Variable Cost per Unit} \times \text{Additional Units}
\]
\[
\text{Increase in Variable Cost} = 1.25 \times 350 = 437.50
\]
The fixed costs ($7,500) remain the same regardless of the number of units sold, so the total cost of supplies does not change due to fixed costs. Therefore, the only cost that will increase with the additional units is the variable cost.
Thus, the increase in the total cost of supplies when 350 more units are sold is **$437.50**.
The correct answer is:
**$437.50**