   Chapter 21, Problem 2DQ

Chapter
Section
Textbook Problem

How would the following costs be classified (variable or fixed) if units produced was the activity base? a. Direct materials costs b. Electricity costs of \$0.35 per kilowatt-hour

To determine

Variable costs: These are the costs that proportionately change with the changes in the activity base such as units of production Common examples of variable costs are direct materials and direct labor costs.

Fixed Costs: These are the costs that remain constant in total dollar amount irrespective to the changes in the activity base such as units of production. Common examples of fixed costs are factory overhead costs and straight-line depreciation expenses.

To classify: the given costs as variable cost or fixed cost if the activity base is units produced.

Explanation

Classify the given costs as variable cost or fixed cost if the activity base is units produced.

The activities that cause the cost to vary accordingly are known as activity base.

a.

Direct Material cost is a variable cost...

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