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January 11th, 2017, 05:34 AM   #1
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accounting algebra Q

Hey there:

Can someone please advise on how to solve this?
Compay has fixed costs of \$400,000 and variable costs are 75% of the selling price. To realise profits of \$100,000 from sales of 500,000 units, the selling price per unit must be?

Fixed Costs + 0.75SalePrice(500 000) = 500 000Sale Price – \$100 000

\$400 000 + 0.75SP(500 000) = 500 000SP - \$100 000

Thanks so much y'all.

Last edited by skipjack; January 11th, 2017 at 10:11 AM.
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January 11th, 2017, 07:57 AM   #2
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Quote:
Originally Posted by Rod22 View Post
Hey there:

Can someone please advise on how to solve this?
Compay has fixed costs of \$400,000 and variable costs are 75% of the selling price. To realise profits of \$100,000 from sales of 500,000 units, the selling price per unit must be?

Fixed Costs + 0.75SalePrice(500 000) = 500 000Sale Price – \$100 000

\$400 000 + 0.75SP(500 000) = 500 000SP - \$100 000

Thanks so much y'all.
First, when using this site, please do not use dollar signs: they have a special meaning here.

Second, you will save time and avoid errors by ALWAYS STARTING with writing down a SINGLE letter as an abbreviation for EACH relevant variable or unknown. This is a basic idea in algebra that for some reason or other is often NOT taught in schools and frequently ignored in accounting and economics.

$s = sales\ price.$

$v = variable\ costs.$

$f = fixed\ costs.$

$p = profits.$

$u = units\ sold.$

Third, write down piece by piece using your letters what you know in this problem.

$p = su - (f + vu).$ Always start with general information.

$u = 500\ thousand \implies p = 500s - (f + 500v).$ Use thousands to simplify.

$f = 400\ thousand \implies p = 500s - (400 + 500v).$

$p = 100\ thousand \implies 100 = 500s - (400 + 500v).$

$v = 0.75s \implies 100 = 500s - (400 - 500 * 0.75s) \implies 100 = 500s - 400 - 375s.$

Now finish it up.

If you follow this step by step approach, you will find word problems much easier.

Last edited by skipjack; January 11th, 2017 at 10:12 AM.
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