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

Exercise 46

Fixed, Variable, and Mixed Costs

Habib Manufacturing has five manufacturing departments and operating and cost information for the most recent two months of activity.

	April	May
Units produced	4,000	6,000
Costs in each department:
Department 1	$16,000	$18,000
Department 2	16,000	26,000
Department 3	20,000	20,000
Department 4	32,000	48,000
Department 5	16,000	24,000

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