Problem 19-1A

Cost Behavior and Cost-Volume-Profit Analysis Warren / Reeve / Duchac Problem 19-1A solution

Classify costs

West Coast Apparel Co. manufactures a variety of clothing types for distribution to several major retail chains. The following costs are incurred in the production and sale of blue jeans. Identify each cost listed below as variable costs, fixed costs, or mixed cost.

a. Salary of production vice president: Fixed
b. Property taxes on property, plant, and equipment: Fixed
c. Electricity costs of $0.12 per kilowatt-hour: Variable
d. Salesperson's salary, $30,000 plus 2% of the total sales: Mixed
e. Consulting fee of $100,000 paid to industry specialist for marketing advice: Fixed
f. Shipping boxes used to ship orders: Variable
g. Dye: Variable
h. Thread: Variable
i. Salary of designers: Fixed
j. Brass buttons: Variable
k. Janitorial supplies, $2,000 per month: Fixed
l. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $40,000 plus $150 per hour: Mixed
m. Straight-line depreciation on sewing machines: Fixed
n. Insurance premiums on property, plant, and equipment, $50,000 per year plus $4 per $20,000 of insured value over $10,000,000: Mixed
o. Hourly wages of machine operators: Variable
p. Fabric: Variable
q. Rental costs of warehouse, $4,000 per month plus $3 per square foot of storage used: Mixed
r. Rent on experimental equipment, $40,000 per year: Fixed
s. Leather for patches identifying the brand on individual pieces of apparel: Variable
t. Supplies: Variable

Exercise 19-4

Cost Behavior and Cost-Volume-Profit Analysis Warren / Reeve / Duchac Exercise 19-4 solution

Identify activity bases
From the following list of activity bases for an automobile dealership, select the base that would be most appropriate for each of these costs:

(1) preparation costs (cleaning, oil, and gasoline costs) for each car received,
(2) salespersons' commission of 4% of the sales price for each car sold,
(3) administrative costs for ordering cars.

a. Dollar amount of cars sold
b. Number of cars received
c. Dollar amount of cars on hand
d. Number of cars on hand
e. Dollar amount of cars ordered
f. Dollar amount of cars received
g. Number of cars ordered
h. Number of cars sold

For each of the costs, choose the activity base from the list of activity bases that would be the most appropriate.

1. Preparation costs (cleaning, oil, and gasoline costs) for each car received: (B)
2. Salespersons' commission of 4% of the sales price for each car sold: (A)
3. Administrative costs for ordering cars: (G)

Exercise 19-2

Cost Behavior and Cost-Volume-Profit Analysis Warren / Reeve / Duchac Exercise 19-2 solution

Identify cost graphs
The following cost graphs illustrate various types of cost behavior:


For each of the following costs, identify the cost graph that best illustrates its cost behavior as the number of units produced increases.
a. Total direct materials cost: Graph Four
b. Electricity costs of $2,000 per month plus $0.09 per kilowatt-hour: Graph Three
c. Per-unit direct labor cost: Graph Two
d. Salary of quality control supervisor, $10,000 per month: Graph Two
e. Per-unit cost of straight-line depreciation on factory equipment: Graph One