Question

for planning control, and decision-making purpose:
(A) fixed costs should be converted to a per unit basis
(B) discretionary fixed costs should be eliminated
(C) variable costs should be ignored
(D) mixed costs should be separated into their variable and fixed components

Answer 1

Answer:

D) mixed costs should be separated into their variable and fixed components

Explanation:

A mixed cost is a cost that contains both a fixed cost component and a variable cost component. It is important to understand the mix of these elements of a cost, so that one can predict how costs will change with different levels of activity. Typically, a portion of a mixed cost may be present in the absence of all activity, in addition to which the cost may also increase as activity levels increase. As the level of usage of a mixed cost item increases, the fixed component of the cost will not change, while the variable cost component will increase. The formula for this relationship is