Question

Veritas is a startup that makes running t-shirts using high-tech fabric. The company has the following cost structure:

Total cost = $50,000 + ($25 × number of t-shirts)

Assume that 5,000 t-shirts are budgeted for the month of April. Calculate the total cost for the month of April.

Assume that 5,000 t-shirts are budgeted for the month of April. Calculate the total variable cost for the month of April.

Answer 1

Ans.

Variable Cost:-

Variable costs is expenses which depend on proportion to the volume of goods produced. It is increase or decrease according to production volume. Variable costs includes sales commissions, cost of raw materials used in production, direct labor costs and other costs.

Fixed Cost:-

Fixed cost is that cost which remain same for a specific period it is not change even change in the number of unit produced or sold. Fixed cost include rent, insurance, interest expenses, depreciation, taxes, salaries and payment of loans.

Total cost:-

The total cost is the sum of all costs which incurred to produced the goods or services i.e., total varible cost and total fixed cost etc.

Given,

Veritas is a startup that makes running t-shirts using high-tech fabric. The company has the following cost structure:

Total cost = $50,000 + [$25 × number of t-shirts]

a. 5,000 t-shirts are budgeted for the month of April.

Total variable cost= Number of units produced x Variable cost per unit

Total variable cost= 5,000 t-shirt x $25

Total variable cost for the month of April= $125,000

b. 5,000 t-shirts are budgeted for the month of April.

Total cost=Total Fixed cost + (Variable cost per unit x Number of units produced)

Total cost=$50,000 + ($25 x 5,000 t-shirts)

Total cost=$50,000 + $125,000

Total cost for the month of April=$175,000