Question

In: Accounting

What are some examples of mixed costs and why would we want to separate them into...

What are some examples of mixed costs and why would we want to separate them into fixed and variable cost components? How would we go about doing this task? Provide an example.

Solutions

Expert Solution

Mixed cost are those costs which have both variable as well as fixed portion. They can be fixed upto a specified limit and then can be converted into variable.

Examples:-

1) Your internet service provider may provide you a plan that is fixed payment of 1000 for starting 5 GB usage and then for every additional gb 150 rupeess.

2) Rent can be another example.Factory owner can say that rent will be combination of fixed amount of 20000 and 5% of sales in the month.

3) Also transport expense can be in such a way that fixed payment of 5000 per truck upto 500 units and then for each additional unit 20 rupees.

Separation of mixed cost into variable and fixed is necessary for following reason

1) To calculate break even point.

2) To analyse different mixed cost alternatives.

3) To make estimates and budgets for future period.

4) To know about the variance from standard (Inc or Dec)

5) To calculate marginal cost of producing one extra unit.

Methid of seapration

Variable portion = Change in mixed cost / Change in activity levels

Fixed portion = mixed cost - variable portion

Example :- Following is the data for 2 years of Maintenance cost

particulars 2017 2018
Maintenance cost 120000 138000
Units produced 7500 12000

Change in maintenance cost = 138000 - 120000 = 18000

Change in Activity levels ( Units produced) = 12000 - 7500 = 4500

Variable portion = Change in cost / Chg in activity levels = 18000 / 4500 = 4 per unit

Fixed portion = Mixed - variable

Taking 2017 data = 120000 - (7500*4) = 90000


Related Solutions

what is ethics in research? and why we should use them? some examples for ethics in...
what is ethics in research? and why we should use them? some examples for ethics in research
What are "cell formation cycles" and why would one want to use them?
What are "cell formation cycles" and why would one want to use them?
what are some specific examples of mandatory bargaining subjects that you would want to bargain with...
what are some specific examples of mandatory bargaining subjects that you would want to bargain with your employer about and why? Wages and hours are excluded. Please come up with 3 examples.
Suppose you want to start a business. What are some of the costs you would look...
Suppose you want to start a business. What are some of the costs you would look at? For Eg you may have to look at - Labor costs: salaries, stipends, fringe benefits Operating costs: rent, supplies and materials, minor equipment and furniture, contracted services, postage, telephone, staff training, local travel Indirect costs: depreciation - capital equipment, custodial services Societal costs: positive or negative impact on society By wed: Break the costs and market structure by a) Economic and Accounting costs...
Why would you want to invest in a bond over a stock? What are some of...
Why would you want to invest in a bond over a stock? What are some of the risks associated with investing in bonds?
Give some examples of oligopolies in the US, compare them, and explain why they are not...
Give some examples of oligopolies in the US, compare them, and explain why they are not regulated. Use economic definitions in your response.
What are cash and cash like equivalents? What are some examples of them?
What are cash and cash like equivalents? What are some examples of them?
What are circuit breakers and why do we have them? What type of conditions would you...
What are circuit breakers and why do we have them? What type of conditions would you consider short selling a stock? What type of evidence would we use to determine if someone traded on inside information?
What are the ledgers, why do we use them? And then HOW do we use them,...
What are the ledgers, why do we use them? And then HOW do we use them, how does information get into them how do balances get extracted. And then what should the balances for various accounts be, i.e. assets, liabilities, expenses, revenues, equity, dividends. Why SHOULD they have a particular balance as either debit or credit.
1. Why would you want to sell a company? What are some valid reasons to do...
1. Why would you want to sell a company? What are some valid reasons to do so? Justify your answer.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT