Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 45

Fixed, Variable, and Mixed Costs Adams Manufacturing’s five manufacturing departments had the following operating and cost information for the two most recent months of activity:

	May	June
Units produced	10,000	20,000
Costs in each department
Department A	$10,000	$10,000
Department B	25,000	50,000
Department C	35,000	45,000
Department D	18,000	64,000
Department E	22,000	44,000

Required Identify whether the cost in each department is fixed, variable, or mixed.

Step 1 of 5

Variable cost:

Variable cost varies directly with the level of output. i.e. these expenses will increase when the production increase and will decrease if production decreases.

Fixed Costs:

Fixed costs do not change with the level of output. And remain fixed for a particular period of time. Fixed costs are incurred even if no unit is produced during the given period of time.

Mixed cost:

Mixed cost includes both variable cost and fixed cost. Generally mixed cost remain fixed for a level of activity and then started to increase as per activity.