The total cost of producing item X is equal to the sum of item X's fixed cost and variable cost. If the variable cost of producing X decreased by 5% in January, by what percent did the total cost of producing item X change in January?
(1) The fixed cost of producing item X increased by 13% in January.
(2) Before the changes in January, the fixed cost of producing item X was 5 times the variable cost of producing item X.
Total = Fixed + Variable .... given
Variable (new) = 0.95 Variable (old)
Stmt 1 - is not suff individual % changes in Fixed and Variable is not suff to cal % change in Total
Total ( new) = 1.13 Fixed(old) + 0.95 Variable(old)
% change = ( Total (new) - Total (old) )/ Total (old)
above cannot be cal hence not poss
Fixed (old) = 5*Varaible (old)
Hence Total (old) = 6 Variable (old)
Total(new) = 6 *0.95 * Variable(old)
using Total (new) and Total (old) we can calculate % change...
Is above reasoning correct?
Please help as OA is C
OA is rightly C) because statement 2) talks about before changes in January and Q is percent variation after changes in January.
Therefore you need both 1) and 2)
Thats correct we are given relation between Fixed and Variable cost before January, but 5% change in Variable is after January
So while calculating Total(new) I am considering 5% decrease in cost of Variable.
If I am not mistaken, you mean to say that I can't consider the relation between Fixed and Variable cost after January??
I am sorry but I am still unable to understand why OA - C
can you please explain with some details/examples
Thanks a lot