New Age Furniture Company manufactures sofas for distribution to several major retail chains. The...
Question:
New Age Furniture Company manufactures sofas for distribution to several major retail chains.
The following costs are incurred in the production and sale of sofas:
| a. Springs |
| b. Consulting fee of $25,000 paid to efficiency specialists |
| c. Sewing supplies |
| d. Electricity costs of $0.10 per kilowatt hour |
| e. Fabric for sofa coverings |
| f. Salary of production vice president |
| g. Salesperson's salary, $20,000 plus 5% of the selling price of each sofa sold |
| h. Janitorial supplies, $15 for each sofa produced |
| i. Employer's FICA taxes on controller's salary of $150,000 |
| j. Rent on experimental equipment, $35 for every sofa produced |
| k. Wood for framing the sofas |
| l. Insurance premiums on property, plant and equipment, $10,000 per year plus $15 per $10,000 of insured value over $15,000,000 |
| m. Hourly wages of sewing machine operators |
| n. Salary of designers |
| o. Property taxes on property, plant and equipment |
| p. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $15,000 plus $175 per hour |
| q. Cartons used to ship sofas |
| r. Rental costs of warehouse, $15,000 per month |
| s. Straight-line depreciation on factory equipment |
| t. Foam rubber for cushion fillings |
Required:
Classify the preceding costs as either fixed, variable or mixed.
Use the following tabular headings and place an "X" in the appropriate column.
Identify each cost by letter in the Cost column.
| Cost | Fixed Cost | Variable Cost | Mixed Cost |
|---|---|---|---|
Fixed Costs and Variable Costs:
Fixed costs are those costs which remain the same regardless of the change in quantities manufactured. Variable costs, on the other hand, pertain to those costs that depend on the quantities manufactured. Variable costs vary in direct proportion with the quantity manufactured, less quantity means less variable cost.
Answer and Explanation: 1
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View this answerAs a guide in determining whether a cost is fixed, variable, or mixed, let us first familiarize these types of costs. Fixed costs are those cost which...
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What is a fixed cost? Learn the fixed cost definition and how to calculate it using the fixed cost formula. Compare fixed vs. variable costs and see fixed costs examples in business.
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