KENNETH C HOLMES
APPLIED MANAGEMENT ACCOUNTING
PROFESSOR: JASON CADE
JANUARY 15, 2015
PHASE 2: DISCUSSION BOARD
VARIABLE, FIXED AND MIXED COSTS
Variable Costs: Costs that change with changes in level of activity, they are driven by activity.
Examples: selling expenses (commissions), administrative expenses, supplies, raw materials,
direct labor (hourly), indirect labor (hourly), and inventory.
Fixed Costs: Costs that do not change with the level of activity that fall within relevant range.
Examples: monthly cell phone contract fee, wages for salaried employees, depreciation on
building and equipment, real estate taxed on factory or office property, R & D, rent, insurance,
taxes, and long-term debt.
Mixed Costs (Semi-Variable Costs): Costs that have characteristics of both variable and fixed
costs.
Examples: land, plant and equipment, utility costs and cell phone bill.
Cost Drivers: the factors that affect change in variable cost.
Example: units produced, machine hours, miles driven on distribution truck, labor hours, raw
materials, minutes on phone service or miles on lease vehicle used beyond contract agreement.
Cost behavior: How a cost reacts to changes in the level of activity within the relevant range.
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Unit fixed cost: falls when volume rises because the costs are spread over more units,
and increases when volume falls because the costs are spread over fewer units, when
within the relevant range. Increased production beyond the relevant range will reduce
unit fixed cost.
Unit variable cost: remains constant irregardless of sales activity.
Total fixed cost: are not affected by level of sales when in the relevant range, because
they are ongoing cost, and include: rent, monthly equipment fees, cost of salaried
employees and loan payments.
Total variable cost: increases as activity rises, and decreases as activity decreases.
Edison Electronic Company variable, fixed and mixed costs:
Variable costs include: selling expenses, administrative expenses, supplies factory, indirect
labor, maintenance expense factory, purchase of raw materials, direct labor factory, bad debt
expense, accounts payable, and income tax rate.
Fixed costs include: insurance factory, factory salaries, factory property tax, depreciation
expense factory, interest expense, notes payable, and bonds payable.
Mixed costs include: utilities factory, land, plant, equipment, and prepaid expenses.
REFERENCES
Cade, J. (2015, January 9). Applied Managerial Accounting, Phase 2 DB Chat and Power Point.
Retrieved from www.ctuonline.edu
Lister, J. (2015). What effects Does Total Unit Cost & Total Fixed Cost have on a Company?
Retrieved from www.smallbusiness.chron.com>money & debt small business