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11 Feb 2026, 20:00
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B
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
35%
(medium)
Question Stats:
69% (01:58) correct
31%
(02:17)
wrong
based on 121
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A fixed cost of $10,000 per day is incurred in manufacturing machine tools. Additionally, $20 go into the making of each machine tool. On Monday, 500 units of machine tools were made while on Tuesday, only 400 were made. The cost per tool on Tuesday was more than that on Monday by what percentage?
A. 11.11%
B. 12.5%
C. 20%
D. 25%
E. 30%
A. 11.11%
B. 12.5%
C. 20%
D. 25%
E. 30%
12 Feb 2026, 06:35
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ExpertsGlobal5
On Monday:
Fixed cost = $10,000
Additional cost = $20 * 500 = $10,000
Total costs = $10,000+ $10,000 = $20,000
Cost per unit = $20,000 / 500 = $ 40.
Tuesday:
Fixed cost = $10,000
Additional cost = $20 * 400 = $8,000
Total costs = $10,000+ $8,000 = $18,000
Cost per unit = $18,000 / 400 = $ 45.
% increase in cost per tool
= (45-40)/40
=(1/8)
= 12.5%
Option B
12 Feb 2026, 13:15
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This is a cost analysis problem that tests your understanding of fixed costs versus variable costs. The trick is realizing that fixed costs stay the same regardless of production volume, which means cost per unit changes.
**Step 1: Calculate Monday's cost per tool**
Fixed cost: $10,000
Variable cost: $20 per tool × 500 tools = $10,000
Total cost Monday: $10,000 + $10,000 = $20,000
Cost per tool Monday: $20,000 ÷ 500 = $40 per tool
**Step 2: Calculate Tuesday's cost per tool**
Fixed cost: $10,000 (same every day!)
Variable cost: $20 per tool × 400 tools = $8,000
Total cost Tuesday: $10,000 + $8,000 = $18,000
Cost per tool Tuesday: $18,000 ÷ 400 = $45 per tool
**Step 3: Calculate percentage increase**
Increase = $45 - $40 = $5
Percentage increase = (Increase/Original) × 100% = (5/40) × 100% = 1/8 × 100% = 12.5%
**Answer: (B) 12.5%**
**Alternative approach (formula):**
% change = [(New - Old)/Old] × 100% = [(45 - 40)/40] × 100% = (5/40) × 100% = 12.5%
**Common trap:** Students often calculate the percentage based on Tuesday's cost ($5/$45) instead of Monday's cost ($5/$40). Remember: percentage change is always calculated as (change/original value). Also, some students forget that the fixed cost of $10,000 doesn't change between days—it's the same $10,000 spread across fewer units on Tuesday, which increases the per-unit cost.
**Takeaway:** In fixed vs. variable cost problems, producing fewer units means the fixed cost is spread across fewer items, increasing the cost per unit. This is a fundamental business concept the GMAT tests: economies of scale work in reverse when production decreases.
**Step 1: Calculate Monday's cost per tool**
Fixed cost: $10,000
Variable cost: $20 per tool × 500 tools = $10,000
Total cost Monday: $10,000 + $10,000 = $20,000
Cost per tool Monday: $20,000 ÷ 500 = $40 per tool
**Step 2: Calculate Tuesday's cost per tool**
Fixed cost: $10,000 (same every day!)
Variable cost: $20 per tool × 400 tools = $8,000
Total cost Tuesday: $10,000 + $8,000 = $18,000
Cost per tool Tuesday: $18,000 ÷ 400 = $45 per tool
**Step 3: Calculate percentage increase**
Increase = $45 - $40 = $5
Percentage increase = (Increase/Original) × 100% = (5/40) × 100% = 1/8 × 100% = 12.5%
**Answer: (B) 12.5%**
**Alternative approach (formula):**
% change = [(New - Old)/Old] × 100% = [(45 - 40)/40] × 100% = (5/40) × 100% = 12.5%
**Common trap:** Students often calculate the percentage based on Tuesday's cost ($5/$45) instead of Monday's cost ($5/$40). Remember: percentage change is always calculated as (change/original value). Also, some students forget that the fixed cost of $10,000 doesn't change between days—it's the same $10,000 spread across fewer units on Tuesday, which increases the per-unit cost.
**Takeaway:** In fixed vs. variable cost problems, producing fewer units means the fixed cost is spread across fewer items, increasing the cost per unit. This is a fundamental business concept the GMAT tests: economies of scale work in reverse when production decreases.
