Question

Taylor Corporation is analyzing the cost behavior of three cost items, A, B, and C, to budget for the upcoming year. Past trends have indicated the following dollars were spent at three different levels of output: Unit Levels 10,000 12,000 15,000 A costs $25,000 $29,000 $35,000 B costs 10,000 15,000 15,000 C costs 15,000 18,000 22,500 In establishing a budget for 14,000 units, Taylor should treat A, B, and C costs as: a.semivariable, fixed, and variable, respectively. b.semivariable, semivariable, and semivariable, respectively. c.variable, semivariable, and semivariable, respectively. d.variable, fixed, and variable, respectively.

Answer 1

Answer:

a. Semi variable, fixed and variable

Explanation:

The computation of costs is shown below:-

Variable Cost per unit = Change in Cost ÷ Change in Output

Fixed Cost = Total Cost - Variable Cost

For Cost A

Variable Cost per unit

= ($35000 - $25000) ÷ ($15,000 - $10,000)

= $2 per unit

Fixed Cost = $35,000 - $15,000 x $2

= $5,000

This is mixed cost which has  variable and fixed cost and also known as semi variable.

For Cost B

Therefore, it is fixed cost, So, Cost B is same for 15000 units and 12000 units

For Cost C

Variable Cost per unit = ($22500 - $15000) ÷ (15,000 - 10,000)

= $1.50 per unit

Fixed Cost = $22,500 - 15,000 × $1.5

= 0

So, the fixed cost is 0,

Variable cost  is Cost C

a. Semi variable, fixed and variable