A cement contractor has determined that he will maximize pretax operating cash flow buying a large cement truck if he is able to sell more than 550 yards of cement per month. The price of a yard of cement is $62, and the variable costs for a large truck are $22 per yard. The variable costs for a small truck are $44 per yard, and the fixed costs for the small truck are $12,000. What are the fixed costs associated with the large truck?
A) $20,000
B) $12,000
C) $24,100
D) $35,000

Question

Quizplus · Accepted Answer

To find the fixed costs associated with the large truck, we need to set the total costs of using a large truck equal to the total costs of using a small truck at the breakeven point of 550 yards. For the large truck, the total cost is the sum of its variable costs and its fixed costs. For the small truck, the total cost is the sum of its variable costs and its fixed costs of $12,000.Let F be the fixed costs for the large truck. The equation for the large truck at 550 yards is:$$550 \times 22 + F = 550 \times 44 + 12,000$$Solving for F:$$12,100 + F = 24,200 + 12,000$$$$F = 24,100 + 12,000 - 12,100$$$$F = 24,100$$Therefore, the fixed costs associated with the large truck are $24,100.

A Cement Contractor Has Determined That He Will Maximize Pretax