Question

If average cost is \(\$ 423,\) price is \(\$ 399\), and the number of units sold is \(23,\) what is the loss?

Short answer

The loss is the difference between the total cost of \( 423 \times 23 \) and the total revenue earned \( 399 \times 23 \)

Step-by-step solution

Calculate the Total Cost

First, calculate the total cost, which is the average cost multiplied by the number of units. Using the values given, we get: \(Total Cost = 423 \times 23\)

Calculate the Total Revenue

The second step is to calculate the total revenue, which is the price multiplied by the number of units sold. Using the values given, we can see: \(Total Revenue = 399 \times 23\)

Compute the Loss

Finally, we calculate the loss, which is the difference between the total cost and total revenue. Therefore, \(Loss = Total Cost - Total Revenue\)

Key concepts

Average Cost

The concept of Average Cost is pivotal when examining business expenses, especially when determining profitability. Simply put, the average cost is the cost to produce one single unit of a product or service. When you have the total cost of production and the number of units produced, you can find the average cost by dividing the total cost by the number of units:\[\text{Average Cost} = \frac{\text{Total Cost}}{\text{Units Produced}}\]In our exercise, the average cost is given as \(423. This means, on average, each unit costs \)423 to produce. Knowing the average cost helps businesses understand how efficiently they are producing their items. If the average cost is greater than the selling price, then a loss could be probable. Knowing this figure is a first step in determining other factors such as pricing strategy and production efficiency.

Total Revenue

Total Revenue is a key factor in understanding a business's financial health. It represents the total income that a company earns from selling its goods or services. Calculating this figure is straightforward: it's the selling price per unit multiplied by the number of units sold.The formula is:\[\text{Total Revenue} = \text{Price Per Unit} \times \text{Units Sold}\]In the exercise we are working with, the price per unit is \(399. Selling 23 units results in a calculation of the total revenue by multiplying \)399 by 23. This amount is crucial as it helps determine if the company's operations are generating sufficient income relative to the costs.A better understanding of total revenue can guide businesses in strategic planning, such as setting the right price point or deciding whether to continue producing a certain product. In scenarios where total revenue falls below total cost, as in the exercise, businesses face a loss.

Units Sold

The number of units sold is a basic yet important data point in assessing a company's sales performance. It simply refers to the quantity of items a company has successfully sold within a certain period. In our example, we have sold 23 units. This number is crucial because it directly influences both total revenue and total cost calculations:

• For Total Revenue, the units sold are multiplied by the selling price per unit.
• For Total Cost, it factors in when multiplied by the average cost per unit to find the total expenditure on production.

Understanding how many units have been sold is not just about measuring success in terms of sales, but also about evaluating market demand and making informed decisions regarding future production volumes. Keeping track of this number helps businesses in forecasting and planning strategies to improve both production and sale processes effectively.