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Fixed, Variable, and Mixed Costs
Refer to the data given in Exercise 1-7. Answer all questions independently.
Required:
1. If 18,000 units are produced and sold, what is the variable cost per unit produced and sold?
2. If 22,000 units are produced and sold, what is the variable cost per unit produced and sold?
3. If 18,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?
4. If 22,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?
5. If 18,000 units are produced, what is the average fixed
6. If 22,000 units are produced, what is the average fixed manufacturing cost per unit produced?
7. If 18,000 units are produced, what is the total amount of fixed manufacturing
8. If 22,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?
Introduction:
Fixed and Variable Cost:
Fixed costs are costs that remains constant and do not fluctuate with the change in activity volumes or production. The increase or decrease in activity volume or production does not impact the cost as the fixed cost is associated with the product. Indirect costs and factory overheads are included in fixed costs.
Variable costs are costs that fluctuates with the activity volume or production. The cost varies with the level of change in activity volume or production. Increase in activity or production leads to increase in total costs and decreased activity or production leads to reduction in total costs. Examples of variable costs include wages paid to labor, sales commission etc. Variable costs are helpful in decision-making process by managers in production process.
Requirement-1:
To calculate: The variable cost per unit produced and sold when
Answer to Problem 9E
Solution:
![Introduction To Managerial Accounting, Chapter 1, Problem 9E , additional homework tip 1](https://content.bartleby.com/tbms-images/9781259917066/Chapter-1/images/html_95484-1-9e_1.png")
Explanation of Solution
Total Variable cost per unit is calculated by using the formula:
Total variable amount is computed as Number of units produced*Cost per unit
Hence the variable cost per unit when
Requirement-2:
To calculate: The variable cost per unit produced and sold when
Answer to Problem 9E
Solution:
![Introduction To Managerial Accounting, Chapter 1, Problem 9E , additional homework tip 2](https://content.bartleby.com/tbms-images/9781259917066/Chapter-1/images/html_95484-1-9e_2.png")
Explanation of Solution
Total Variable cost per unit is calculated by using the formula:
Total variable amount is computed as Number of units produced*Cost per unit
Hence the variable cost per unit when
Requirement-3:
To calculate: The total amount of variable cost when
Answer to Problem 9E
Solution:
![Introduction To Managerial Accounting, Chapter 1, Problem 9E , additional homework tip 3](https://content.bartleby.com/tbms-images/9781259917066/Chapter-1/images/html_95484-1-9e_3.png")
Explanation of Solution
Variable costs includes the sum of all costs that changes with the level of production such as cost of direct labor, direct material, variable overheads, variable selling and administrative expenses.
The total amount of variable cost is
Requirement-4:
To calculate: The total amount of variable cost when
Answer to Problem 9E
Solution:
![Introduction To Managerial Accounting, Chapter 1, Problem 9E , additional homework tip 4](https://content.bartleby.com/tbms-images/9781259917066/Chapter-1/images/html_95484-1-9e_4.png")
Explanation of Solution
Variable costs includes the sum of all costs that changes with the level of production such as cost of direct labor, direct material, variable overheads, variable selling and administrative expenses.
The total amount of variable cost is
Requirement-5:
To Calculate: The average fixed manufacturing cost per unit when
Answer to Problem 9E
Solution: Average Fixed Manufacturing Cost per Unit for
Explanation of Solution
The formula for calculating average fixed manufacturing cost per unit is:
Average Fixed Manufacturing Cost per Unit for 18,000 Units=
Average Fixed Manufacturing Cost per Unit for 18,000 Units=
Total Fixed Manufacturing Cost is computed as Budgeted Units * Fixed Manufacturing cost per unit.
Total Fixed Manufacturing Cost=
Hence the average fixed manufacturing cost per unit when
Requirement-6:
To Calculate: The average fixed manufacturing cost per unit when
Answer to Problem 9E
Solution: Average Fixed Manufacturing Cost per Unit for 22,000 Units =
Explanation of Solution
The average fixed manufacturing cost per unit is calculated by using the formula,
Average Fixed Manufacturing Cost per Unit=
Average Fixed Manufacturing Cost per Unit for 22,000 Units
Total Fixed Manufacturing Cost is computed as Budgeted Units * Fixed Manufacturing cost per unit
Total Fixed Manufacturing Cost=
Hence the average fixed manufacturing cost per unit when 22,000 units are produced is
Requirement-7:
To calculate:
The total amount of fixed manufacturing overhead incurred to support when 18,000 units are produced and sold.
Answer to Problem 9E
Solution:
![Introduction To Managerial Accounting, Chapter 1, Problem 9E , additional homework tip 5](https://content.bartleby.com/tbms-images/9781259917066/Chapter-1/images/html_95484-1-9e_5.png")
Explanation of Solution
Fixed overhead cost does not change with the level of activity or production. Hence the budgeted 20,000 units are taken for calculating total amount of fixed manufacturing overhead that is constant for all levels of production.
Hence the total amount of fixed manufacturing overhead will be $100,000 to support 18,000 units of goods produced and sold.
Requirement-8:
To Calculate:
The total amount of fixed manufacturing overhead incurred to support when 22,000 units are produced and sold.
Answer to Problem 9E
Solution:
![Introduction To Managerial Accounting, Chapter 1, Problem 9E , additional homework tip 6](https://content.bartleby.com/tbms-images/9781259917066/Chapter-1/images/html_95484-1-9e_6.png")
Explanation of Solution
Fixed overhead cost does not change with the level of activity or production. Hence the budgeted 20,000 units are taken for calculating total amount of fixed manufacturing overhead that is constant for all levels of production.
Hence the total amount of fixed manufacturing overhead will be
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