Question

Select cost information for Seacrest Enterprises is as follows:1,000 units of output 5,000 units of outputTotal Cost/Unit Total Cost/UnitDirect materials $5,000 $5.00 $25,000 $5.00Utilities expense $1,000 $1.00 $3,750 $0.75Rent expense $4,000 $4.00 $4,000 $0.80Based on this information:a.Both direct materials and rent expense are variable costs.b.Utilities expense is a mixed cost and rent expense is a variable cost.c.Utilities expense is a mixed cost and rent expense is a fixed cost.d.Direct materials is a fixed cost and utilities expense is a mixed cost.e.Both direct materials and utilities expense are mixed costs.

Answer 1

c.Utilities expense is a mixed cost and rent expense is a fixed cost

Step-by-step explanation:

Based on the information:

1,000 units of output 5,000 units of output

Total Cost/Unit Total Cost/Unit

Direct materials $5,000 $5.00 $25,000 $5.00

Utilities expense $1,000 $1.00 $3,750 $0.75

Rent expense $4,000 $4.00 $4,000 $0.80

Total Rent expense remains constant at 5,000 units of output as it is at 1,000 units of output ($4,000). So we know that rent expense is a fixed cost for Seacrest Enterprises.

Utilities expense has changed at 5,000 units of output so it is not a fixed cost and the cost/unit has also decreased to $0.75 so it is a mixed cost.

So now we look at all the given options:

a.Both direct materials and rent expense are variable costs. (wrong, as rent expense is not a variable cost but a fixed cost)

b.Utilities expense is a mixed cost and rent expense is a variable cost.

(wrong, as rent expense is not a variable cost but a fixed cost)

c.Utilities expense is a mixed cost and rent expense is a fixed cost. (CORRECT)

d.Direct materials is a fixed cost and utilities expense is a mixed cost. (wrong,direct material is not a fixed cost since it has increased at 5000 units of output)

e.Both direct materials and utilities expense are mixed costs. (direct material is not a mixed cost but a variable cost)