BRIEF EXERCISE 5

BRIEF EXERCISE 5 - BRIEF EXERCISE 5-1 Indirect labor is a...

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BRIEF EXERCISE 5-1 Indirect labor is a variable cost because it increases in total directly and proportionately with the change in the activity level, and the cost per unit remains constant at $5. Supervisory salaries is a fixed cost because it remains the same in total regardless of changes in the activity level, and the cost per unit decreases with increases in activity. Maintenance is a mixed cost because it increases in total but not proportionately with changes in the activity level, and the cost per unit decreases with increases in activity. BRIEF EXERCISE 5-2 VARIABLE COST Relevant Range FIXED COST Relevant Range $10,000 $10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 0 20 40 60 80 100 0 20 40 60 80 100 Activity Level (%) Activity Level (%)
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50,000 30,000 $70,000 30,000 10,000 BRIEF EXERCISE 5-3 COST Total Cost Line 60,000 Variable Cost Element 40,000 20,000 Fixed Cost Element 0 1,000 2,000 3,000 4,000 5,000 Direct Labor Hours BRIEF EXERCISE 5-4 High Low Difference $15,000 – $13,500 = $1,500 8,500 mi 7,500 mi = 1,000 mi $1,500 ÷ 1,000 = $1.50—Variable cost per mile.
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BRIEF EXERCISE 5 - BRIEF EXERCISE 5-1 Indirect labor is a...

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