Think of a company with which you are familiar. Describe the company and their primary product(s)/service(s)....

Think of a company with which you are familiar. Describe the company and their primary product(s)/service(s). Identify a fixed cost, a variable cost, and a mixed cost that company would incur and explain how you determined that those costs would fit those behavior patterns.

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Expert Solution

Company: Ford Motor Company

Product: Automobile (Trucks, buses, tractors, cars etc.)

Fixed cost: Factory rent

Explanation: The fixed cost remains the same at all level of output. It does not change with the change in the output. The company has to pay the rent irrespective of its level of production. The rent expense will remain same at all level of production because it is a period cost. Therefore, the factory rent is considered as a fixed cost.

Variable cost: Raw material (steel, aluminum), daily workers

Explanation: The variable cost differs as the production of the company changes. It increases as the production rises and decreases as the production decreases. The raw material and labor cost is a variable cost because these expenses will differ at all level of output. The company would require high quantity of material and intensive labor force for the production of huge number of units. Whereas, the requirement of labor and material will be reduced as the production decreases.

Mixed cost: Electricity & telecommunication expense

Explanation: The mixed cost remains constant (fixed) at a specific level and then varies with the level of output. There are fixed minimum electricity and telecommunication charges that the company has to pay irrespective of the use. In addition, these expenses increase as the company starts using these services. The electricity expense increases as the company uses the electricity for various use such as production, office etc.

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ekkarill92 answered 1 year ago

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