Q2SE - Horngren'S Financial And Managerial Accounting

Question

Identifying variable, fixed, and mixed costs Holly’s Day Care has been in operation for several years. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of students enrolled. 

1. Building rent. 

2. Toys. 

3. Compensation of the office manager, who receives a salary plus a bonus based on number of students enrolled. 

4. Afternoon snacks. 

5. Lawn service contract at $200 per month. 

6. Holly’s salary. 

7. Wages of afterschool employees. 

8. Drawing paper for students’ artwork. 

9. Straight-line depreciation on furniture and playground equipment. 

10. Fee paid to security company for monthly service.

 

Step-by-Step Solution

Answer

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

Meaning of variable, fixed, and mixed cost

Every company has three types of costs variable, fixed, and mixed. Variable cost remains constant on a per unit basis. Fixed costs stays constant in the total amount. The combination of variable and fixed costs is a mixed cost.

Classification of costs

Costs	Types of Costs
Building Rent	Fixed
Toys	Fixed
Compensation of the office manager, who receives a salary plus a bonus based on number of students enrolled.	Mixed
Afternoon snacks	Variable
Lawn service contract at $200 per month.	Fixed
Holly’s salary.	Fixed
Wages of afterschool employees.	Variable
Drawing paper for students’ artwork.	Variable
Straight-line depreciation on furniture and playground equipment.	Fixed
Fee paid to security company for monthly service.	Fixed