Southwest U's campus book store sells course packs for $16 each.The variable cost per pack is $10,and at current annual sales of 50,000 packs,the store earns $75,000 before taxes on course packs.How much are the fixed costs of producing the course packs?
A)$164,025
B)$182,250
C)$202,500
D)$225,000
E)$247,500

Question

Quizplus · Accepted Answer

To find the fixed cost, we can use the following formula:
Total Revenue - Total Variable Cost = Total Fixed Cost
Here, we know that the store earns $75,000 before taxes on 50,000 packs, which gives us a revenue of $1.5 million. We also know that the variable cost per pack is $10, giving us a total variable cost of $500,000 (50,000 x $10). Substituting these values in the formula, we get:
$1,500,000 - $500,000 = Total Fixed Cost
Total Fixed Cost = $1,000,000
Therefore, the fixed cost of producing the course packs is $1,000,000 or $225,000 per year (since the question asks for annual fixed costs). The best choice is D.

Southwest U's Campus Book Store Sells Course Packs for $16