Classify the total costs of each of the following as variable, fixed, mixed, or
ID: 2422893 • Letter: C
Question
Classify the total costs of each of the following as variable, fixed, mixed, or step. Sales volume is the cost driver. (a) Salary of the department manager Step Variable Mixed Fixed (b) Memory chips in a computer assembly plant Mixed Fixed Variable Step (c) Real estate taxes Mixed Variable Fixed Step (d) Salaries of quality inspectors when each inspector can evaluate a maximum of 1,000 units per day Fixed Variable Mixed Step (e) Wages paid to production employees for the time spent working on products Variable Mixed Fixed Step (f) Electric power in a factory Fixed Variable Step Mixed (g) Raw materials used in production Fixed Mixed Step Variable (h) Automobiles rented on the basis of a fixed charge per day plus an additional charge per mile driven Variable Step Fixed Mixed (i) Sales commissions Step Mixed Variable Fixed (j) Depreciation on office equipment Fixed Step Variable Mixed
Explanation / Answer
Cost Driver -- Sales Volume Nature of cost Reason (a) Salary of the department manager Fixed cost Does not vary with sales b)Memory chips in a computer assembly plant Variable cost Varies with sales (c) Real estate taxes Fixed cost Do not vary with sales (d) Salaries of quality inspectors when each inspector can evaluate a maximum of 1,000 units per day Step cost Salary stays constant for 1000 units- does not vary with every unit- but changes for levels above 1000 and stays at that level ,till the next 1000 is reached. (e) Wages paid to production employees for the time spent working on products Variable cost Varies with sales (f) Electric power in a factory Mixed cost Basic consumption is fixed and the rest varies as sales & demand for more production goes up. (g) Raw materials used in production Variable cost Varies with sales (h) Automobiles rented on the basis of a fixed charge per day plus an additional charge per mile driven Mixed cost Minimum basic charge is fixed and the balance varies as per miles driven. (i) Sales commissions Variable cost Varies with sales (j) Depreciation on office equipment Fixed cost Does not vary with sales