Please help Following are five series of costs A through E measured at various v
ID: 2565490 • Letter: P
Question
Please help
Following are five series of costs A through E measured at various volume levels. Examine each series and identify which is fixed, variable, mixed, step-wise, or curvilinear. Exercise 18-4 Cost behavior identification C1 Series B $2,500 3,100 3,700 4,300 4,900 5,500 6,100 Series D $1,000 1,000 2,000 2,000 3,000 3,000 4,000 Series E $5,000 5,000 5,000 5,000 5,000 5,000 5,000 Volume (Units) Series A Series C 0 0 3,600 7,200 10,800 14,400 18,000 21,600 6,000 6,600 7,200 8,200 9,600 13,500 2 3 4 400 800 1,200 1,600 2,000 2,400 6 7 :4 KA Sheet1 Sheet2 Sheet3Explanation / Answer
Answer:
Series A: It is in the nature of variable cost . As we can see that that the cost per unit is (3600 /400 = $ 9 per unit ) and it is allicable at each level of activity.
Series B: Its is in the nature of mixed cost i.e. blend of fixed and variable cost . here Fixed cost is $ 2,500 and Variable cost per unit is ( 3100-2500 /400 units = 1.50 per unit). The same is appliocable for each level of activity.
Series C: It is also in the nature of mixed cost (i.e. blend of fixed and variable cost. Here the fixed cost is $ 5400 adn variable cost per unit ( change in cost / change in units ) ( 6600-6000 /800-400 = $ 1.50 per unit)
Seried D: It is in the nature of Step wise cost. In Step wise cost, the cost will increase by a fixed amount after it crosses a defined level of activity. Here we can see that the cost is increased by $ 1000 adn the cost structure is as follows:
For Activity level of 0 and 400 units, COst is $ 1000
For activity level of 800 and 1200 units, Cost is $ 2000 (increase by fixed amount of $ 1,000 for next level )
For activity level of 1600 and 2000 units, cost is $ 3000 (again increase by fixed amount $ 1000 for next level of avtivity)
Series E: It is in the nature of Fixed cost. As we can see that for any level of activity, the cost remains same i.e. $ 5,000