Last year, Flash Company sold 15,000 units of its only product. If sales increased by 20% in the current year, how will total variable cost and total fixed cost be affected?
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question

Last year, Flash Company sold 15,000 units of its only product. If sales increased by 20% in the current year, how will total variable cost and total fixed cost be affected? 
A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D 
E) Choice E

Quizplus · Accepted Answer

Since sales increased by 20%, the total units sold in the current year will be 15,000 x 1.2 = 18,000 units.

Total fixed cost will not be affected by this increase in sales, as it is a sunk cost that does not vary with the level output.

However, total variable cost will increase proportionally with the increase in sales. This is because variable costs vary with output, such as the cost of materials and labor needed to produce each unit.

Therefore, the best choice is C, where total variable cost will increase but total fixed cost will remain unchanged.

Last Year, Flash Company Sold 15,000 Units of Its Only