Q1SE - Horngren'S Financial And Managerial Accounting

Question

Identifying variable, fixed, and mixed costs 

 

Philadelphia Acoustics builds innovative speakers for music and home theater systems. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of speakers produced and sold. 

 

1. Units of production depreciation on routers used to cut wood enclosures. 

2. Wood for speaker enclosures. 

3. Patents on crossover relays. 

4. Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals. 

5. Crossover relays. 

6. Straight-line depreciation on manufacturing plant. 

7. Grill cloth. 

8. Insurance on the corporate office. 

9. Glue. 

10. Quality inspector’s salary.

 

Step-by-Step Solution

Answer

1. Variable
2. Variable
3. Fixed
4. Mixed
5. Variable
6. Fixed
7. Variable
8. Fixed
9. Variable
10. Fixed

Step 1: Meaning of variable, fixed, and mixed cost

Term cost means the pecuniary value of any expenditure like raw material, labor, rent, etc. There are mainly three sorts of costs: variable, fixed, and mixed.

Variable costs rely upon the extent of production. It means variable costs increases when a rise within the units produced and vice versa.

Fixed costs don’t change because of changes in production level. These costs are incurred whether or not the production is zero.  

Mixed costs have characteristics of variable similarly to fixed. Also referred to as semi-variable costs.  

 

Step 2: Classification of costs

 

Costs	Types of Costs
Units of production depreciation on routers used to cut wood enclosures.	Variable
Wood for speaker enclosures.	Variable
Patents on crossover relays.	Fixed
Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.	Mixed
Crossover relays.	Variable
Straight-line depreciation on manufacturing plant.	Fixed
Grill cloth.	Variable
Insurance on the corporate office.	Fixed
Glue	Variable
Quality inspector’s salary.	Fixed