Question

Two costs at Bradshaw Company appear below for specific months of operation. Month Amount Units Produced Delivery costs September $ 40,000 40,000 October 55,000 60,000 Utilities September $ 84,000 40,000 October 126,000 60,000
Which type of costs are these?
a. Delivery costs and utilities are both variable.
b. Delivery costs and utilities are both mixed.
c. Utilities are mixed and delivery costs are variable.
d. Delivery costs are mixed and utilities are variable.

Answer 1

Answer:

D

Explanation:

Delivery costs are mixed and utilities are variable.

Variable costs are cost that changes in direct proportion to the level of production. This means that when the variable cost increases then more units are produced and decreases when less units are produced.

Mixed costs also known as semi-variable costs have properties of both fixed and variable costs due to the presence of both variable and fixed components in them.

In this case utilities is a variable cost, it increases as the units increase, while delivery cost is a mixed cost, it has the element of both fixed and variable.

A fixed cost does not change with the level of activity it remains the same.