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Management Accounting: Fixed And Variable Costs

524 words - 3 pages

I.Assignment InstructionsCosts can be classified into two categories, fixed and variable costs. These costs behave differently based on the level of sales volumes. Suppose we are running a restaurant and have identified certain costs along with the number of annual units sold of 1000.Item: Raw Materials (cost for hamburgers)Total Annual Cost: 650Item: Building RentTotal Annual Cost: 9000Identify which cost item above is fixed and variable and why? What is the cost per unit of each? Suppose we increased our sales volume to 6000 units and then to 8000 units the following year (and are still within the relevant range), what would be the total annual cost and unit cost of fixed and ...view middle of the document...

It is a constant no matter what the level of activity and does not change. A fixed cost would only change if a company were to rent a different facility that either increased or decreased the amount of the fixed cost. (Horngren/Sundem/Stratton, 2005).2.What is the cost per unit of each?a.The cost per unit of the material is: $0.651. $650 / 1000 = $0.65b.The cost per unit for rent is: $9.001.$9000 / 1000 = $9.003.What would be the total annual cost and unit cost of fixed and variable costs at 6000 units of sales?a.6000 Units1.Variable cost per unit is = $0.652.Total annual cost of variable cost = $0.65 * 6000 = $3,9003.Unit fixed cost = $1.504.Total annual cost of fixed cost = $90001.Since we do not know the selling price, the Cost Volume Profit Analysis, Equation Method would be shown as follows:a.($X * 6000) - $3900 - $9000 = net income4.What would be the total annual cost and unit cost of fixed and at 8000 units of sales?a.8000 Units1.Variable cost per unit is = $0.652.Total annual cost of variable cost = $0.65 * 8000 = $52003.Unit fixed cost = $1.134.Total annual cost of fixed cost = $90001.Since we do not know the selling price, the Cost Volume Profit Analysis, Equation Method would be shown as follows:a.($X * 8000) - $5200 - $9000 = net incomeReferencesHorngren, C./Sundem, G./Stratton, W. (2005). Introduction to Management Accounting.(13th ed.). Upper Saddle River, NJ. Pearson Education Inc.American InterContinental University. (2007). ACG420-0701B-09: ManagerialAccounting and Organizational Controls. Assignment List. Retrieved on March 17,2007 from

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