Kocher Steel typically achieves one of three production levels in any given year

Question

Kocher Steel typically achieves one of three production levels in any given year: 8 million pounds of steel, 10 million pounds of steel, or 16 million pounds of steel. In tracking some of its costs, Kocher Steel's controller discovered one cost that was $10 per pound at a production level of 8 million pounds, $8 per pound at a production level of 10 million pounds, and $5 per pound at a production level of 16 million pounds. This is an example of a A.Fixed cost B. Variable Cost C. Semifixed cost D. Semivariable Cost

Explanation / Answer

This is a classic case of Fixed costs.

Here as the sales volume is increasing, cost of a pound is decreasing, so it is a classic case of fixed costs.

Total fixed costs = $10 million 8 8 = $800 million

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