Problem:
King Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production.
|
Costs Incurred
|
|
Production in Units
|
5,000
|
10,000
|
|
Production Costs
|
Total
Cost
|
Cost/
Unit
|
Total
Cost
|
Cost/
Unit
|
|
Direct materials
|
$8,250
|
$1.65
|
$16,500
|
$1.65
|
|
Direct labor
|
9,500
|
1.90
|
19,000
|
1.90
|
|
Utilities
|
1,500
|
0.30
|
2,500
|
0.25
|
|
Rent
|
4,000
|
0.80
|
4,000
|
0.40
|
|
Maintenance
|
800
|
0.16
|
1,100
|
0.11
|
|
Supervisory salaries
|
1,000
|
0.20
|
1,000
|
0.10
|
Instructions
(a) Define the terms variable costs, fixed costs, and mixed costs.
(b) Classify each cost above as either variable, fixed, or mixed.