# if the variable cost is $40 for and the fixed cost is $20 then the total cost is

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## Examiners Report

Examiners Report - March 2018 - Question 1 - Free ACCA & CIMA online courses from OpenTuition Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

## Examiners Report – March 2018 – Question 1

Forums › ACCA Forums › ACCA PM Performance Management Forums › Examiners Report – March 2018 – Question 1

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April 17, 2018 at 7:02 pm

chrisj1 Participant Topics: 5 Replies: 28 ☆ Question:

Log Co has an operating gearing ratio of 33.33%. Its sales are currently $100m and its operating

profit is $20m.

Operating gearing is calculated by dividing fixed costs by variable costs.

What will its operating profit be its sales increases by 15%?

Answer: B 26

In order to calculate the operating profit, the total cost must be calculated first. As sales are

$100m and profit is $20m, the total cost will be $80m. Given the operational gearing is 33.33%, the fixed cost to variable cost will be in the ratio of 1:3. The fixed cost can be calculated as ¼ x $80m=$20m and the variable cost will be $60m. Contribution will be $40m before the increase in sales. After the 15% increase in sales the new contribution will be 1.15 x $40m= $46m and the new operating profit will be $46m – $20m (FC)= $26m

How do they go from 1:3 to 1/4. Please could someone explain the answer.

April 18, 2018 at 8:21 am

samirrules Participant Topics: 18 Replies: 188 ☆☆☆ @chrisj1 said: Question:

Log Co has an operating gearing ratio of 33.33%. Its sales are currently $100m and its operating

profit is $20m.

Operating gearing is calculated by dividing fixed costs by variable costs.

What will its operating profit be its sales increases by 15%?

Answer: B 26

In order to calculate the operating profit, the total cost must be calculated first. As sales are

$100m and profit is $20m, the total cost will be $80m. Given the operational gearing is 33.33%, the fixed cost to variable cost will be in the ratio of 1:3. The fixed cost can be calculated as ¼ x $80m=$20m and the variable cost will be $60m. Contribution will be $40m before the increase in sales. After the 15% increase in sales the new contribution will be 1.15 x $40m= $46m and the new operating profit will be $46m – $20m (FC)= $26m

How do they go from 1:3 to 1/4. Please could someone explain the answer.

Hi Chris,

The ratio of fixed costs to variable costs is 1:3 so that means for every one part of fixed costs there are three variable costs parts. Therefore, there are a total of four parts, where one part related to fixed costs and three parts relate to variable costs. So if you know total costs are 80 million then the amount relating to fixed costs is 80 million x 1/4 = 20 million.

To show that this works note that this means fixed costs = 20 and variable costs = 20 x 3 = 60, so the total costs still = 80 million.

Hope that helps.

April 18, 2018 at 9:16 pm

chrisj1 Participant Topics: 5 Replies: 28 ☆ Thank you

May 28, 2018 at 5:47 pm

sidishah Member Topics: 34 Replies: 74 ☆☆

how do they get 1: 3 first?

May 30, 2018 at 10:20 pm

tnvrstar Participant Topics: 4 Replies: 19 ☆

Please let us know how did they find 1:3 from operating gearing ratio 33.33%??

May 31, 2018 at 12:47 pm

Kim Smith Keymaster Topics: 102 Replies: 6941 ☆☆☆☆☆

The operating gearing (leverage) ratio is the relationship between fixed cost (FC) and variable costs (VC). For example:

Company A: FC = $20k, VC = $40k gives ratio 1: 2 – i.e. half (50%) and FC is 1/3rd of TOTAL cost (20+40 = 60)

Company B: FC = $20k, VC = $60k gives ratio 1: 3 – i.e. a third (33 1/3%) and FC is 1/4 of TOTAL cost

Company C: FC = $20k, VC = $80k gives ratio 1: 4 – i.e. a quarter (25%) and FC is 1/5th of TOTAL cost

May 31, 2018 at 11:33 pm

tnvrstar Participant Topics: 4 Replies: 19 ☆ Interesting . Thanks a lot.

Seems like you need to be a pro to solve such multiple choice question.

February 13, 2023 at 5:59 pm

ACCAStudent111111 Participant Topics: 4 Replies: 7 ☆

I have a question about the same question.

The question is saying that the sales were increased by 15%.

So why are we taking the 15% increase both on Sales and VC please?

March 5, 2023 at 2:31 am

kvz911 Participant Topics: 12 Replies: 47 ☆☆

Variable cost changes with output where as fixed cost does not change with output !! That why the VC is also increased when sales are increased!

## econ test 2 ch. 6 pt. 2 Flashcards

title Learn with flashcards, games, and more — for free.

## econ test 2 ch. 6 pt. 2

Don Keene promotes boxing matches. He makes $6,500 per fight. Which cost is most relevant to a decision as to whether to promote one more fight?

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the marginal cost of promoting one additional boxing match

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1 / 50 Created by russ4555 title

Terms in this set (50)

Don Keene promotes boxing matches. He makes $6,500 per fight. Which cost is most relevant to a decision as to whether to promote one more fight?

the marginal cost of promoting one additional boxing match

If total cost increases as output increases, then:

marginal cost must be positive.

The vertical distance between the average total cost curve and the average variable cost curve equals

average fixed cost.

Assume the following cost information about Fred's widget company: Its fixed cost is $27, and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5. Given this information:

all of the above are true

If AVC is subtracted from the ATC, the result is:

average fixed cost.

In the short run, AFC is always greater than

Zero Average fixed cost

is characterized by both a. and c

The change in total cost resulting from a one-unit increase in production is called:

marginal cost.

The marginal cost of a good is:

the addition to total cost from producing one more unit of output

Average fixed cost:

is characterized by both a. and d.

Which of the following is consistent with diminishing marginal product?

Beyond some point, each added hour studying each day adds less to what you know than the previous hour's study.

Don Keene promotes boxing matches. He makes $6,500 per fight. Which cost is most relevant to a decision as to whether to promote one more fight?

the marginal cost of promoting one additional boxing match

The marginal cost of a good is:

the addition to total cost from producing one more unit of output.

Assume the following cost information about Fred's widget company: Its fixed cost is $27, and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5. Given this information:

both b. and c. are correct.

If average total costs are $40 and average variable cost are $20 at 10 units of output and the marginal cost of the 11th unit is $30, what is the average total cost of 11 units?

$39.09

Fixed costs are best defined as:

costs that do not vary with output.

A firm's total fixed cost equals $2,500. The firm's average fixed cost at 1, 5, and 10 units of output, respectively, will be:

$2,500, $500, and $250

Which of the following is most likely to be a fixed cost for a business?

interest payments on a loan used to finance the construction of a building

Total variable costs:

increase as production increases.

Which of the following is a reason that marginal product will eventually begin to fall?

limited amounts of fixed inputs

Which of the following is consistent with diminishing marginal product?

Beyond some point, each added hour studying each day adds less to what you know than the previous hour's study.

Whenever the marginal product of a firm's only variable input was positive, but falling:

its total product is growing at a decreasing rate.

You operate a factory that produces beach towels. Your current level of output equals 2,000 towels per week. Your weekly variable cost equals $8,000. If your total cost each week equals $9,000, it follows that:

both b. and d. are correct.

Assume the following cost information about Fred's widget company: Its fixed cost is $27, and its total variable cost is $18 for 1 unit; $33 for 2; $45 for 3; $60 for 4; and $78 for 5. Given this information:

all of the above are true

In the table below, diminishing marginal product is first evident with the addition of the ____ worker.

6

Over the range of diminishing marginal product, if the variable input to a firm is increased:

output will increase less than in proportion to the increase in the input.

You operate a factory that produces beach towels. Your current level of output equals 2,000 towels per week. Your weekly variable cost equals $8,000. If your total cost each week equals $9,000, it follows that:

the average total cost of production equals $4.50 per towel.

A firm is producing 1,000 units of output for which the average variable cost of production equals 50 cents. The firm's total fixed costs equal $700. The total cost of producing 1,000 units of output equals:

$1,200.

Diminishing marginal product of labor occurs when:

adding another unit of labor increases output, but not by as large a margin as the last unit of labor employed.

Which of the following is most likely to be a fixed cost for a business?

interest payments on a loan used to finance the construction of a building

The average total cost of producing laptop computers in a factory is $500 at the current output level of 100 units per week. If fixed costs equal $10,000:

average variable cost equals $400.

## If total variable cost at output 4 is $100 and if total variable cost at output 6 is $140, then the marginal cost is: a) $40 b) $25 c) $20 d) about 23

Answer to: If total variable cost at output 4 is $100 and if total variable cost at output 6 is $140, then the marginal cost is: a) $40 b) $25 ...

Marginal cost

## If total variable cost at output 4 is $100 and if total variable cost at output 6 is $140, then...

If total variable cost at output 4 is $100 and if total variable cost at output 6 is $140, then... Question:

If the total variable cost at output 4 is $100 and if the total variable cost at output 6 is $140, then the marginal cost is:

a) $40 b) $25 c) $20 d) about 23

## Marginal Cost:

Marginal cost is the extra costs firms have to incur in order to produce an additional unit of output. When production involves both fixed costs and variable costs, then the marginal cost of producing the last unit is the increase in variable costs associated with producing the last unit, since the fixed costs are constant.

## Answer and Explanation:

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The answer is **c) $20.**

Recall that the marginal cost is the increase in variable costs associated with producing the extra unit of output. Fixed costs...

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Marginal Cost: Definition, Equation & Formula

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What is marginal cost? Learn how to calculate marginal cost with the marginal cost formula. See the definition, behavior, and marginal cost examples.

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Guys, does anyone know the answer?