Question

Identify whether each of the following is best described as a fixed, variable, or mixed cost with respect to product units?

1) Fixed cost
2) Variable cost
3) Mixed cost

Answer 1

Fixed costs do not change with the level of production, variable costs vary with the level of production, and mixed costs have both a fixed and variable component.

Step-by-step explanation:

Fixed costs are costs that do not change regardless of the level of production. They remain constant and do not vary with the number of product units produced. Examples of fixed costs include rent and salaries of employees.

Variable costs, on the other hand, vary with the number of product units produced. They increase or decrease in direct proportion to the level of production. Examples of variable costs include raw materials and direct labor costs.

Mixed costs are a combination of fixed and variable costs. They have both a fixed component and a variable component. Examples of mixed costs include utility bills with a fixed monthly fee and a variable charge based on usage.