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Identifying Fixed, Variable, Mixed, and Step Costs Consider each of the following independent situations: a. A computer service agreement in which a company pays $150 per month and $15 per hour of technical time b. Fuel cost of the company’s fleet of motor vehicles c. The cost of beer for a bar d. The cost of computer printers and copiers at your college e. Rent for a dental office f. The salary of a receptionist in a law firm g. The wages of counter help in a fast-food restaurant h. The salaries of dental hygienists in a three-dentist office. One hygienist can take care of 120 cleanings per month. i. Electricity cost which includes a $15 per month billing charge and an additional amount depending on the number of kilowatt-hours used Required: 1. For each situation, describe the cost as one of the following: fixed cost, variable cost, mixed cost, or step cost. ( Hint: First, consider what the driver or output measure is. If additional assumptions are necessary to support your cost type decision, be sure to write them down.) Example : Raw materials used in production—Variable cost 2. CONCEPTUAL CONNECTION Change your assumption(s) for each situation so that the cost type changes to a different cost type. List the new cost type and the changed assumption(s) that gave rise to it. Example: Raw materials used in production. Changed assumption—the materials are difficult to obtain, and a year’s worth must be contracted for in advance. Now, this is a fixed cost. (This is the case with diamond sales by DeBeers Inc. to its sightholders. See the following website for information: www.keyguide.net/sightholders/.)

BuyFind

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773
BuyFind

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773

Solutions

Chapter
Section
Chapter 3, Problem 57P
Textbook Problem

Identifying Fixed, Variable, Mixed, and Step Costs Consider each of the following independent situations:

  1. a. A computer service agreement in which a company pays $150 per month and $15 per hour of technical time
  2. b. Fuel cost of the company’s fleet of motor vehicles
  3. c. The cost of beer for a bar
  4. d. The cost of computer printers and copiers at your college
  5. e. Rent for a dental office
  6. f. The salary of a receptionist in a law firm
  7. g. The wages of counter help in a fast-food restaurant
  8. h. The salaries of dental hygienists in a three-dentist office. One hygienist can take care of 120 cleanings per month.
  9. i. Electricity cost which includes a $15 per month billing charge and an additional amount depending on the number of kilowatt-hours used

Required:

  1. 1. For each situation, describe the cost as one of the following: fixed cost, variable cost, mixed cost, or step cost. (Hint: First, consider what the driver or output measure is. If additional assumptions are necessary to support your cost type decision, be sure to write them down.)

    Example: Raw materials used in production—Variable cost

  2. 2. CONCEPTUAL CONNECTION Change your assumption(s) for each situation so that the cost type changes to a different cost type. List the new cost type and the changed assumption(s) that gave rise to it.

    Example: Raw materials used in production. Changed assumption—the materials are difficult to obtain, and a year’s worth must be contracted for in advance. Now, this is a fixed cost. (This is the case with diamond sales by DeBeers Inc. to its sightholders. See the following website for information: www.keyguide.net/sightholders/.)

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Chapter 3 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making
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