Question

M5-7 (Algo) Estimating Cost Behavior [LO 5-2,5-3] Castle Inc. has the following information: Cost A Month January February Amount $ 44,000 $ 44,000 Units 40,000 80,000 Month Cost B January February Amount $ 88,000 $123,200 Units 70,400 140,800 Month Cost C January February Amount $ 96,000 $ 192,000 Units 192,000 384,000 Indicate whether these costs are variable, fixed, or mixed. Cost A Cost B Cost C

Answer 1

COST A	Fixed Costs
COST B	Mixed Costs
COST C	Variable Costs
Explanation:	Fixed, Mixed & Variable Costs can be defined as follows;
Fixed Costs	decreases per unit when activity increases, but stays the same in total
Mixed Costs	decreases per unit and increases in total when production increases
Variable Costs	stays the same per unit but increases in total when production increases
COST A	Fixed, as it is decreasing per unit with increase in output, but staying same in total.	Month	Units (A)	Total Amt. (B)	Per Unit (B/A)
		January	40000	$44,000	$1.10
		February	80000	$44,000	$0.55
COST B	Mixed, as it is decreasing per unit with increase in output and increasing in total with increase in output.	Month	Units (A)	Total Amt. (B)	Per Unit (B/A)
		January	70400	$88,000	$1.25
		February	140800	$1,23,200	$0.88
COST C	Variable, as it remains same per unit, but increasing with increase in output.	Month	Units (A)	Total Amt. (B)	Per Unit (B/A)
		January	192000	$96,000	$0.50
		February	384000	$1,92,000	$0.50