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Chapter 20: Q19E (page 1124)

Determining cost behavior

Identify each cost below as variable (V), fixed (F), or mixed (M), relative to units sold. Explain your reason.

Units Sold 25 50 75 100

a. Total phone cost \( 150 \) 200 \( 250 \) 300

b. Materials cost per unit 35 35 35 35

c. Manager鈥檚 salary 3,000 3,000 3,000 3,000

d. Depreciation cost per unit 60 30 20 15

e. Total utility cost 400 650 900 1,150

f. Total cost of goods sold 3,125 6,250 9,375 12,500

Short Answer

Expert verified

Answer

  1. Mixed (M)

  2. Variable (V)

  3. Fixed (F)

  4. Mixed (M)

  5. Mixed (M)

  6. Mixed (M)

Step by step solution

01

Meaning of variable, fixed, and mixed cost.

Variable costs are the costs that remain constant in per unit basis but keeps on changing in total amount with the change in level of sales.

Fixed costs are the costs that remain constant in total amount. It does not change with the change in sales level. It is also known as sunk cost.

Mixed costs are the costs that include variable and fixed components in it. These costs are also specified as Semi-variable costs.

02

Determining cost behavior

a. Total phone cost
Mixed (M)
b. Material cost per unit
Variable (V)
c. Manager鈥檚 salary
Fixed (F)
d. Depreciation cost per unit
Mixed (M)
e. Total utility cost
Mixed (M)
f. Total cost of goods sold
Mixed (M)

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Most popular questions from this chapter

What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.

What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

Mi Tierra Driving School charges \(680 per student to prepare and administer written and driving tests. Variable costs of \)408 per student include trainers鈥� wages, study materials, and gasoline. Annual fixed costs of \(63,920 include the training facility and fleet of cars.

Requirements

1. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided:

a. Breakeven point with no change in information.

b. Decrease sales price to \)544 per student.

c. Decrease variable costs to \(340 per student.

d. Decrease fixed costs to \)53,040.

2. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.

Diversified Investor Group is opening an office in Boise, Idaho. Fixed monthly costs are office rent (\(8,000), depreciation on office furniture (\)1,700), utilities (\(2,400), special telephone lines (\)1,500), a connection with an online brokerage service (\(2,500), and the salary of a financial planner (\)11,900). Variable costs include payments to the financial planner (9% of revenue), advertising (11% of revenue), supplies and postage (4% of revenue), and usage fees for the telephone lines and computerized brokerage service (6% of revenue).

Requirements

  1. Use the contribution margin ratio approach to compute Diversified鈥檚 breakeven revenue in dollars. If the average trade leads to \(800 in revenue for Diversified, how many trades must be made to break even?
  2. Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of \)11,200.
  3. Graph Diversified鈥檚 CVP relationships. Assume that an average trade leads to \(800 in revenue for Diversified. Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, the operating income area, and the sales in units (trades) and dollars when monthly operating income of \)11,200 is earned.
  4. Suppose that the average revenue Diversified earns increases to $2,000 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point?

Question: Determining total variable cost

For each variable cost per unit listed below, determine the total variable cost when units produced and sold are 25, 50, and 100 units.

Direct materials $ 40

Direct labor 80

Variable overhead 9

Sales commission 12
See all solutions

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