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Chapter 20: Q1SE (page 1120)

Identifying variable, fixed, and mixed costs

Philadelphia Acoustics builds innovative speakers for music and home theater systems. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of speakers produced and sold.

1. Units of production depreciation on routers used to cut wood enclosures.

2. Wood for speaker enclosures.

3. Patents on crossover relays.

4. Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.

5. Crossover relays.

6. Straight-line depreciation on manufacturing plant.

7. Grill cloth.

8. Insurance on the corporate office.

9. Glue.

10. Quality inspector鈥檚 salary.

Short Answer

Expert verified
  1. Variable
  2. Variable
  3. Fixed
  4. Mixed
  5. Variable
  6. Fixed
  7. Variable
  8. Fixed
  9. Variable
  10. Fixed

Step by step solution

01

Meaning of variable, fixed, and mixed cost

Term cost means the pecuniary value of any expenditure like raw material, labor, rent, etc. There are mainly three sorts of costs: variable, fixed, and mixed.

Variable costs rely upon the extent of production. It means variable costs increases when a rise within the units produced and vice versa.

Fixed costs don鈥檛 change because of changes in production level. These costs are incurred whether or not the production is zero.

Mixed costs have characteristics of variable similarly to fixed. Also referred to as semi-variable costs.

02

Classification of costs 

Costs

Types of Costs

Units of production depreciation on routers used to cut wood enclosures.

Variable

Wood for speaker enclosures.

Variable

Patents on crossover relays.

Fixed

Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.

Mixed

Crossover relays.

Variable

Straight-line depreciation on manufacturing plant.

Fixed

Grill cloth.

Variable

Insurance on the corporate office.

Fixed

Glue

Variable

Quality inspector鈥檚 salary.

Fixed

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Most popular questions from this chapter

Identifying variable, fixed, and mixed costs Holly鈥檚 Day Care has been in operation for several years. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of students enrolled.

1. Building rent.

2. Toys.

3. Compensation of the office manager, who receives a salary plus a bonus based on number of students enrolled.

4. Afternoon snacks.

5. Lawn service contract at $200 per month.

6. Holly鈥檚 salary.

7. Wages of afterschool employees.

8. Drawing paper for students鈥� artwork.

9. Straight-line depreciation on furniture and playground equipment.

10. Fee paid to security company for monthly service.

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has $6,000 in fixed costs per month.

6. Prepare a contribution margin income statement for one month if the company sells 200 tables.

7. What is the total contribution margin for the month when the company sells 200 tables?

8. What is the unit contribution margin?

9. What is the contribution margin ratio?

Calculating contribution margin

Glenn Company sells a product for \(80 per unit. Variable costs are \)60 per unit, and fixed costs are $800 per month. The company expects to sell 560 units in September. Calculate the contribution margin per unit, in total, and as a ratio.

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has \(6,000 in fixed costs per month. Calculate the breakeven point in units under each independent scenario.

14. Variable costs increase by \)10 per unit.

15. Fixed costs decrease by $600.

16. Sales price increases by 10%.

Determining mixed costs鈥攖he high-low method

The manager of Trusty Car Inspection reviewed the monthly operating costs for the past year. The costs ranged from \(4,300 for 1,300 inspections to \)3,900 for 900 inspections.

Requirements

1. Use the high-low method to calculate the variable cost per inspection.

2. Calculate the total fixed costs.

3. Write the equation and calculate the operating costs for 1,000 inspections.

4. Draw a graph illustrating the total cost under this plan. Label the axes, and show the costs at 900, 1,000, and 1,300 inspections.
See all solutions

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