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Managerial Accounting: The Corners...

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

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Describe the cost formula for a strictly variable cost such as electrical power cost of $1.15 per machine hour (i.e., every hour the machinery is run, electrical power cost goes up by $1.15).

To determine

Identify the cost formula for a strictly variable cost.

Explanation

Variable Cost:

Variable cost is the cost which varies due to the changes in the level of output to produce products and services in a relevant range.

The combination of fixed cost and variable cost is known as total cost. The strictly variable cost formula is as follows:

Total Cost=Fixed Cost+Variable Cost=Fixed Cost+(Variable Rate × Number of Hours)

In the absence of fixed cost, variable cost is equal to total cost

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