2 A number of costs and measures of activity are listed below Cost Description P

Question

2 A number of costs and measures of activity are listed below Cost Description Possible Measure of Activity Cinder blocks 1. Cost of cement used to produce cinder blocks ,Cost of leasing checkout equipment on a monthly basis at roduced Dollar sales a hardware store . Cost of vaccine used at a clinic Vaccines administered Number of patients Number of autos assembled Number of patients Dollar sales Salary of the staff chaplain at a hospital Windshield wiper blades installed on autos at an auto assembly plant 6. Lease cost of equipment at a dentist's office 7. Interest expense on corporate debt Cost of renting production equipment on a monthly basis at a snowboard manufacturer Snowboards produced Snowboards sold 9. Cost of advertising at a snowboard compan 10.lCook's wages at a taco sho Dollar sales Required or each item above, indicate whether the cost is MAINLY fixed or variable with spect to the possible measure of activity listed next to it.

Explanation / Answer

Fixed costs : Costs that do not change with increases/decreases in units of production volume. For e.g. Rent, Advertisement cost etc.

Variable costs : Costs that are solely dependent on the volume of units of production i.e increase/decrease with increase/decrease in production volume. For e.g. Direct material, Direct labour etc.

1. Variable. As the cost of cement will increase/decrease w.r.t change in quantity of cinder blocks to be produced
2. Fixed. Lease cost has to be borne even if there is no sale for particular period.
3. Variable. Cost changes w.r.t no. of vaccines administered.
4. Variable. Cost will vary w.r.t no. of patients.
5. Variable. Cost will vary w.r.t no. of autos assembled
6. Fixed. Cost is fixed irrespective of no. of patients as the lease cost has to be beared even if there are no patients for a period.
7. Fixed. Interest expense is not dependent on sales.
8. Fixed. Renting cost is fixed and not dependent on no. of snowboards produced.
9. Fixed. Advertisement cost is fixed and not dependent of no. of snowboards sold.
10. Variable. Wages will increase with increase in Sales.

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