Identifying Fixed, Variable, Mixed, and Step CostsConsider each of the following independent situations:a. A computer service agreement in which a company pays $150 per month and $15 per hourof technical timeb. Fuel cost of the company’s fleet of motor vehiclesc. The cost of beer for a bard. The cost of computer printers and copiers at your collegee. Rent for a dental officef. The salary of a receptionist in a law firmg. The wages of counter help in a fast-food restauranth. The salaries of dental hygienists in a three-dentist office. One hygienist can take care of 120cleanings per month.i. Electricity cost which includes a $15 per month billing charge and an additional amountdepending on the number of kilowatt-hours usedRequired: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. Ifadditional assumptions are necessary to support your cost type decision, be sure to writethem down.)Example: Raw materials used in production—Variable cost2. CONCEPTUAL CONNECTION Change your assumption(s) for each situation so that thecost 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 aredifficult to obtain, and a year’s worth must be contracted for in advance. Now, this is afixed cost. (This is the case with diamond sales by DeBeers Inc. to its sightholders. See thefollowing website for information: www.keyguide.net/sightholders/.)
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/.)
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