Question

E5.1 (LO 1), C Bonita Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production. Costs Incurred able, faxed 10,000 5,000 Cost/ Unit Production in Units Cost/ Unit Total Total Cost Cost Production Costs $16,000 19,000 3,300 $1.60 $1.60 $8,000 9,500 2,000 4,000 800 Direct materials 1.90 1.90 Direct labor Utilities 0.40 0.33 Rent 0.80 4,000 1,400 1,000 0.40 Maintenance 0.16 0.14 Supervisory salaries 1,000 0.20 0.10 Instructions a. Define the terms variable costs, fixed costs, and mixed costs. b. Classify each cost above as either variable, fixed, or mixed.

Answer 1

Ans. A	Variable costs :   A cost that varies with the level of production or sales, known as variable cost.
	Total variable cost increase or decrease in the proportion of sales or production units that's why
	the variable cost per unit always remians same in each level of output.
	Fixed cost :    A cost that does not change in the proportion of output, is known as fixed cost.
	Total fixed cost always remians constant, but fixed cost per unit increases if the output decreases
	and decreases if the output increases.
	Mixed cost : A cost that contains variable and fixed (both) components, is known as mixed cost.
	Neither total mixed cost nor unit mixed cost remains constant on each level of production.
Ans. B	Production costs	Cost Type
	Direct materials	Variable
	Direct labor	Variable
	Utilities	Mixed
	Rent	Fixed
	Maintenance	Mixed
	Supervisory salaries	Fixed