Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 64

Identifying Fixed, Variable, Mixed, and Step Costs
Consider each of the following independent situations:
a. A computer service agreement in which a company pays $150 per month and $15 per hour of technical time
b. Fuel cost of the company's fleet of motor vehicles
c. The cost of beer for a bar
d. The cost of computer printers and copiers in your college
e. Rent for a dental office
f. The salary of a receptionist in a law firm
g. The wages of counter help in a fast-food restaurant
h. The salaries of dental hygienists in a three-dentist office. One hygienist can take care of 120 cleanings per month
i. Electricity cost which includes a $15 per month billing charge and an additional amount depending on the number of kilowatt-hours used
Required:
1. For each situation, describe the cost as one of the following: fixed cost, variable cost, mixed cost, or step cost. ( Hint: First, consider what the driver or output measure is. If additional assumptions are necessary to support your cost type decision, be sure to write them down.) Example: Raw materials used in production-Variable cost
2. CONCEPTUAL CONNECTION Change your assumption(s) for each situation so that the cost type changes to a different cost type. List the new cost type and the changed assumption( s) that gave rise to it.
Example: Raw materials used in production. Changed assumption-the materials are difficult to obtain, and a year's worth must be contracted for in advance. Now, this is a fixed cost. (This is the case with diamond sales by DeBeers Inc. to its sightholders. See the following website for information: www.keyguide.net/sightholders/.)