Homework Answers
Q1.
(a) Electricity Cost is a variable cost since it directly varies
with kWH used. Rate per kWH is same at all levels. Variable cost
per unit remains constant for all levels of activity
Telephone cost is a mixed cost since this cost changes with change in level of minutes but not in direct proportion to that, It is a mixed of variable and fixed Cost
Water bill is fixed cost, since total cost remains same at all levels of activity
(b)
Electricity
Variable cost = ($1266-720)/(4220-2400) = $0.30 per unit
Fixed Cost = $720 - 2400 x 0.30 = 0
Cost Equation = $0.30 x kWH
Telephone bill
Variable cost = ($197.60-179.20)/(2880-1960) = $0.02 per
minute
Fixed Cost = $197.60 - 2880 x 0.02 = $140
Cost Equation = $140 + $0.02 x minutes
Water bill
Cost Equation = $120
(c) Combined Cost equation = $260 + $0.30 x kWH + $0.02 x minutes
(d) Total Cost = $260 + 3600 x $0.30 + 2400 x $0.02 = $1388
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