Concept introduction:
Variable Cost:
Variable cost is the type of cost that changes with the level of production. Variable costs increase with the increase in the level of production and vice-versa. Although the total Variable cost changes with the level of production but the variable cost per unit remains constant irrespective of the level of production.
To indicate:
The Difference between fixed and variable costs and their examples in case of driving a car
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Managerial Accounting
- Question 1:Verna Salsbury tells you that she thinks the terms fixed cost and variable cost are confusing. She notes that fixed cost per unit changes when the number of units changes. Furthermore, variable cost per unit remains fixed regardless of how many units are produced. She concludes that the terminology seems to be backward. Explain why her explanation appears to be incorrect.arrow_forward*check the attached photo for the problem REQUIRED: What is the total cost per unit? What is the biggest cost per unit? Are there possible ways of reducing the cost per unit?arrow_forwardConsider McDonald’s for a moment and list an example of each of the following costs that would be incurred by a McDonald’s restaurant: (a) a fixed cost, (b) variable cost, and (c) mixed cost. Please be specific and explain why each is a good fit in that category. (Note: For the variable cost on your list, please identify the activity base (driver))arrow_forward
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- Please explain thoroughly the statement below. (True/false), how and why? "When expressed on a per-unit basis, fixed costs can mislead decision-makers into thinking of them as variable costs." Here is my explanation on the statement above (is it true?): Because the fixed cost per unit varies and variable cost per unit is constant. Therefore, users can think of the fixed cost as a variable cost.arrow_forwardWhich of the following cost behavior assumptions is true? (You may select morethan one answer.)a. Variable costs are constant if expressed on a per unit basis.b. Total variable costs increase as the level of activity increases.c. The average fixed cost per unit increases as the level of activity increases.d. Total fixed costs decrease as the level of activity decreasesarrow_forwardIn my accounting class I am learning how to prepare contribution margin income statements. I am having trouble learning how to calculate variable costs, fixed cost per unit, variable cost per unit, and fixed costs per year. Is there a special equation I should usearrow_forward
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