E22-1. Define and classify variable, fixed, and mixed costs. (LO 1) Bonita Compa

Question

E22-1.  

Define and classify variable, fixed, and mixed costs.

(LO 1)

Bonita Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production.

Instructions

(a)  

Define the terms variable costs, fixed costs, and mixed costs.

(b)  

Classify each cost above as either variable, fixed, or mixed.

Costs Incurred Production in Units 5,000 10,000 Production Costs Total Cost Cost/Unit Total Cost Cost/Unit Direct materials $8,000 $1.60 $16,000 $1.60 Direct labor ?9,500 ?1.90 ?19,000 ?1.90 Utilities ?2,000 ?0.40 ??3,300 ?0.33 Rent ?4,000 ?0.80 ??4,000 ?0.40 Maintenance ???800 ?0.16 ??1,400 ?0.14 Supervisory salaries ?1,000 ?0.20 ??1,000 ?0.10

Explanation / Answer

(A) Variable Cost It refers to the itme of cost which increases in the sale proportion as outpot increases Fixed Cost It refers to the cost which remains fixedirrepective to the output produced. Eg : rent of machinery, Mixed Cost Mixed Cost is mixed of both the cost i.e., fixed and variable cost (b) Expense Type of cost Direct Material Variable Direct Labour Variable Utilities Mixed Rent Fixed Maintenance Mixed Supervisor Salary Fixed

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