CVP discusses fixed and variable costs. However, we also have mixed costs have both a variable...

CVP discusses fixed and variable costs. However, we also have mixed costs have both a variable and fixed cost component. For example, many overhead costs operate like that. For example, electricity usually has a base charge and then it has a usage charge. So, what do we do with those costs in CVP? Does this mean we can't use for companies with mixed costs?

Solutions

Expert Solution

Mixed Costs also known as semi-variable costs contains two components which are-

1. Fixed component- It includes all those costs which does not change with the change in volume of activity

2. Variable component- It includes all those costs which changes with the change in volume of activity

For such mixed costs, In CVP we apply mixed cost formula and bifurcate the mixed cost into Fixed costs component and variable cost component

The mixed costs formula is

y = a + bx

where

y indicates formula of total mixed cost
a indicates fixed cost during the period
b indicates a variable rate calculated per unit of the activity
x indicates number of the units of the activity

No, this doesn't mean we can't use for companies with mixed costs, we have to calculate the fixed cost component and the variable cost component from the mixed costs using the mixed cost formula mentioned above and consider the calculated variable costs and fixed costs in CVP .

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Variable, Fixed, and Mixed Costs Classify the following costs of activity inputs as variable, fixed, or...

Variable, Fixed, and Mixed Costs Classify the following costs of activity inputs as variable, fixed, or mixed. Identify the activity and the associated activity driver that allow you to define the cost behavior. For example, assume that the resource input is “cloth in a shirt." The activity would be "sewing shirts," the cost behavior "variable," and the activity driver "units produced." Prepare your answers in the following format: Activity Cost Behavior Activity Driver a. Flu vaccine Assembling Delivering orders Filing...

Explain step costs and mixed costs. Is it possible to classify these as variable or fixed?...

Explain step costs and mixed costs. Is it possible to classify these as variable or fixed? Is it possible for a particular cost to be classified as variable in one decision making situation and fixed in another situation? Explain.

Discuss what fixed, variable, and mixed costs are and the high-low method for dealing with mixed...

Discuss what fixed, variable, and mixed costs are and the high-low method for dealing with mixed costs

In Managerial accounting, there are also three additional types of costs, these include fixed costs, mixed...

In Managerial accounting, there are also three additional types of costs, these include fixed costs, mixed costs and variable costs. Please define each term and give an example of a product or service that used mixed costs. One example includes the old cell phone bill. Remember when your minutes were free after 9pm? If you received or made a call duing the day, it would cost you $.05 per call. Therefore you had your monthly fee (fixed costs) and your...

1.The different aspects of variable costs, fixed costs, and mixed costs. (Consider how they behave in...

1.The different aspects of variable costs, fixed costs, and mixed costs. (Consider how they behave in regards to both total costs and unit costs.) 2.Discuss their behavior in regards to the relevant range. Please write a paragraph for each so I can understand a little better.

Anand Limited manufactures drones for industrial use. Most of their costs are either true variable costs or fixed costs. However, an account analysis shows the following items are mixed costs.

Anand Limited manufactures drones for industrial use. Most of their costs are either true variable costs or fixed costs. However, an account analysis shows the following items are mixed costs. Account Analysis 2016 Total Cost Production supervision 80% fixed $150,000 Utilities 20% fixed $60,000 Sales staff wages 70% fixed $200,000 Quality control inspections 90% fixed $40,000 *The 30% variable portion relates to sales commissions based on total sales. **50% of manufactured units are inspected each year. In 2016...

The following are different categories of costs: Variable, Fixed (committed), Fixed (discretionary), and Mixed. Identify what...

The following are different categories of costs: Variable, Fixed (committed), Fixed (discretionary), and Mixed. Identify what type of cost is best represented by the following examples of costs and briefly explain why. The answer to the first one, Rent, is provided as an example: Rent is a fixed, committed cost because it does not change due to differences in activity levels. In other words, rent is always a cost that will be due regardless of business activity level. It is...

(1) Please list examples of fixed costs, variable costs, and mixed costs incurred by (your choice...

(1) Please list examples of fixed costs, variable costs, and mixed costs incurred by (your choice - choose one business) a McDonald’s restaurant, (2) a law firm, OR 3) a construction company. List at least one example of each type of cost. Also, please identify the activity base (driver) for each variable cost. (2) DBR Manufacturing rewards the company’s plant manager with a year-end bonus based on the increase in the plant’s operating income. For purposes of determining the manager’s...

1. Many costs can be easily classified as variable or fixed. Mixed costs are generally analyzed...

1. Many costs can be easily classified as variable or fixed. Mixed costs are generally analyzed (via High/Low method, Least squares method, scattergraph) to determine the fixed and variable components. You are assisting management in the preparation of operational goals for next year. You note that mixed costs were less than 3% of total costs. Would you recommend that mixed cost be analyzed to determine the fixed and variable components? Not analyze the mixed costs? If not, what? 4. What...

Can fixed and variable costs be mixed and matched according to direct, indirect, period , and...

Can fixed and variable costs be mixed and matched according to direct, indirect, period , and product?

Subjects