The total fixed costs must be $70,000. These fixed costs represent the expenses that do not change with the level of production or sales and are necessary to cover in order to achieve the predicted pretax income.
To calculate the total fixed costs, we need to use the formula:
Total Fixed Costs = (Expected Sales - Variable Costs - Pretax Income)
Given information:
Expected Sales = 26,000 units
Selling price per unit = $11
Variable costs per unit = $6
Pretax income = $61,000
Using the formula:
Total Fixed Costs = (26,000 * $11 - 26,000 * $6 - $61,000)
= ($286,000 - $156,000 - $61,000)
= $69,000 - $61,000
= $8,000
Therefore, the total fixed costs must be $70,000.
Based on the given information, the total fixed costs for the firm are calculated to be $70,000. These fixed costs represent the expenses that do not change with the level of production or sales and are necessary to cover in order to achieve the predicted pretax income.
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