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Chapter 20: Q2SE (page 1120)

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.

Short Answer

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

Step by step solution

01

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.

02

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

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Most popular questions from this chapter

Determine how each change effects the elements of the cost-volume-profit graph by placing an X in the appropriate column(s).


EFFECT

Sales Line
Fixed Cost Line
Total cost line
Breakeven point

Change

Slope Increases

Slope decreases

Shifts up

Shifts Down

Slope Increases

Slope Decreases

Increases

Decreases

Sales price per unit Increases

Sales price per unit Decreases

Variable cost per unit Increases

Variable cost per unit decreases

Total fixed cost increases

Total fixed cost decreases

England Productions performs London shows. The average show sells 1,300 tickets at\(60 per ticket. There are 175 shows per year. No additional shows can be held as thetheater is also used by other production companies. The average show has a cast of65, each earning a net average of \)340 per show. The cast is paid after each show. Theother variable cost is a program-printing cost of \(8 per guest. Annual fixed costs total\)728,000.

Requirements

1. Compute revenue and variable costs for each show.

2. Use the equation approach to compute the number of shows England Productionsmust perform each year to break even.

3. Use the contribution margin ratio approach to compute the number of showsneeded each year to earn a profit of $5,687,500. Is this profit goal realistic? Giveyour reasoning.

4. Prepare England Productions’s contribution margin income statement for175 shows performed in 2018. Report only two categories of costs: variableand fixed.

Following is a list of costs for a furniture manufacturer that specializes in wood tables. Classify each cost as variable, fixed, or mixed relative to the number of tables produced and sold.

1. Wood used to build tables

2. Depreciation on saws and other manufacturing equipment

3. Compensation for sales representatives paid on a salary plus commission basis

4. Supervisor’s salary

5. Wages of production workers

What is operating leverage? What does it mean if a company has a degree of operating leverage of 3?

Complete the table below for the missing amounts:

A B C

Number of units 2,064 units (d) 2,570 units

Sales price per unit \( 250 \) 125 $ (g)

Variable costs per unit (a) 50 4,528

Contribution margin per unit 125 (e) (h)

Total contribution margin (b) 1,567,500 (i)

Contribution margin ratio (c) (f) 20%
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