Question 20
Theory of Costs and RevenueA firm's total fixed cost is ₦60,000, and the variable cost per unit is ₦40. If the firm sells output at ₦70 per unit, which of the following are CORRECT?
I. Break-even output is 2,000 units
II. Contribution per unit is ₦30
III. Profit at 3,000 units of output is ₦30,000
IV. At 1,500 units, the firm makes a loss
- A.I, II and III only
- B.II and IV only
- C.I and IV only
- D.All of the above
Show the answer and explanation
Answer: D (All of the above)
Explanation
Contribution = 70 − 40 = ₦30, so break-even = 60,000/30 = 2,000 units. At 3,000 units profit = 90,000 − 60,000 = ₦30,000; at 1,500 units contribution is only ₦45,000, a loss. All four are correct.