Concept explainers
Following is a list of costs for a furniture manufacturer that specializes in wood tables. Classify each cost as variable, fixed, or mixed relative to the number of tables produced and sold.
Wood used to build tables
Identify the given cost as variable, fixed, or mixed relative to number of tables produced and sold in a furniture manufacturer.
Explanation of Solution
Variable cost: A variable cost is the cost that proportionately changes with the changes in the activity base such as units of production.
Fixed Cost: It is the cost that remains constant in total dollar amount irrespective to the changes in the activity base such as units of production.
Mixed Cost: It refers to the costs that possess characteristics of both fixed cost and variable cost.
Identify the given cost as variable, fixed, or mixed relative to number of tables produced and sold in a furniture manufacturer.
Wood used to build tables is a variable cost. This is because it is a direct material cost to be used for making finished goods (tables) ready to be sold. The cost would change with the change in the number of units to be produced.
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