Select cost information for Klondike Corporation is as follows: Based on this in

Question

Select cost information for Klondike Corporation is as follows:

Based on this information:

a.

Both direct materials and rent expense are variable costs.

b.

Direct materials is a fixed cost and rent expense is a variable cost.

c.

Both direct materials and rent expense are fixed costs.

d.

Direct materials is a variable cost and rent expense is a fixed cost.

e.

Both direct materials and utilities expense are mixed costs.

1,000 units of output 2,000 units of output Total Cost/Unit Total Cost/Unit Direct materials $4,000 $4.00 $8,000 $4.00 Rent expense $2,000 $2.00 $2,000 $1.00

Explanation / Answer

Based on the above information option d " Direct Material is a variable cost and rent is a fixed cost" is correct

This is because direct material cost changes with each level of production, whwreas rent cost remains fixed at both levels of production

This is also so as variable cost per unit is fixed and fixed cost per unit varies with level of production

Hence option d is correct

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