Answer:
Only costs 1 and 4 are variable costs.
Explanation:
Note: The data in this question are merged together. They are therefore sorted before answering the question as follows:
Which of the following costs are variable?
Cost 10,000 Units 30,000 Units
1. $100,000 $300,000
2. 40,000 240,000
3. 90,000 90,000
4. 50,000 150,000
Explanation of the answer are now given as follows:
Variable costs refer to per unit cost that remains the same at every level of activity. Variable cost can be calculated as follows:
Variable cost per unit = Total cost / Number of unit ………… (1)
For this question, the variable costs can be determined using the following rules:
Rule 1. When per unit cost are the same, they are variable cost.
Rule 2. When per unit cost are different, they are not variable cost.
Rule 3. When the total cost is the same, they are fixed costs.
These rules are then applied by using equation (1) as follows:
For Cost 1:
Cost per unit of 10,000 units = $100,000 / 10,000 units = $10
Cost per unit of 30,000 units = $300,000 / 30,000 units = $10
Based on Rule 1, Cost 1 is a variable cost.
For Cost 2:
Cost per unit of 10,000 units = $40,000 / 10,000 units = $4
Cost per unit of 30,000 units = $240,000 / 30,000 units = $8
Based on Rule 2, Cost 2 is not a variable cost.
For Cost 3:
Since the two total costs are $90,000 each, Cost 3 is therefore fixed cost based on Rule 3.
For Cost 4:
Cost per unit of 10,000 units = $50,000 / 10,000 units = $5
Cost per unit of 30,000 units = $150,000 / 30,000 units = $5
Based on Rule 1, Cost 3 is a variable cost.
Based on the calculation above, only costs 1 and 4 are variable costs.
