Identification of Variable and Fixed Costs El A. Indicate whether each of the following costs of productive output is usually (a) variable or (b) fixed: 1. License fee for company car 6. Machine depreciation based on 2. Wiring used in radios machine hours used 3. Machine helper's wages 7. Machine operator's hourly wages 4. Wood used in bookcases 8. Cost of required outside inspection of 5. City operating license each unit produced Variable Cost Analysis E2A. Zero Time Oil Change has been in business for six months. The company pays $0.75 per quart for the oil it uses in servicing cars. Each job requires an avenge of 4 quarts of oil. The company estimates that in the next three months, it will service 250, 280, and 360 cars. 1. Compute the cost of oil for each of the three months and the total cost for all three months. 2. Complete the following sentences by choosing the words that best describe the cost behavior at Zero Time: a. Cost per unit (increased, decreased, remained constant). b. Total variable cost per month (increased, decreased) as the quantity of oil used (increased, decreased).
Mixed Costs: High-Low Method E3A. Madison Company manufactures major appliances. Because of growing interest in its products, it has just had its most successful year. In preparing the budget for next year, its controller compiled the following information:
Month Volume In Machine Hours Electricity Cost July 6,000 S 60,000 August 5,000 53,000 September 4,500 49,500 October 4,000 46,000 November 3,500 42,500 December 3,000 36,000 Six-month total 26,000 5287,000
Mixed Costs: High-Low Method E3A. Madison Company manufactures major appliances. Because of growing interest in its products, it has just had its most successful year. In preparing the budget for next year, its controller compiled the following information:
Month Volume In Medan* Hours Electricity Cost July 6,000 5 60,000 August 5,000 53,000 September 4,500 49,500 October 4,000 46,000 November 3,500 42500 December 3,000 36,000 Six-month total 26,000 5287,000
Using the high-low method, determine the variable electricity cost per machine hour and the monthly fixed electricity cost. Estimate the total variable electricity costs and fixed electricity costs if 4,800 machine hours are projected to be used next month.
Sample Solution