Chapter 3, Problem 57P

Identifying Fixed, Variable, Mixed, and Step Costs Consider each of the following independent situations:

1. a. A computer service agreement in which a company pays $150 per month and $15 per hour of technical time
2. b. Fuel cost of the company’s fleet of motor vehicles
3. c. The cost of beer for a bar
4. d. The cost of computer printers and copiers at your college
5. e. Rent for a dental office
6. f. The salary of a receptionist in a law firm
7. g. The wages of counter help in a fast-food restaurant
8. h. The salaries of dental hygienists in a three-dentist office. One hygienist can take care of 120 cleanings per month.
9. 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. 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. 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/.)