Question

Which of the following is (are) example(s) of a mixed cost? I. A building that is used for both manufacturing and sales activities. II. An employee's compensation, which consists of a flat salary plus a commission. III. Depreciation that relates to five different machines. IV. Maintenance cost that must be split between sales and administrative offices. II only. I, II, III, and IV. I, III, and IV. I only. I and III.

Answer 1

Answer:

II only;

An employee's compensation, which consists of a flat salary plus a commission is an example of mixed cost.

Answer 2

Answer: The mixed cost is the employees compensation since it consist of both the flat salary which is fixed and the commission that is variable.

Explanation:

A mixed cost is a cost that is made up of a fixed cost and a variable cost. It is vital to understand the mix of these costs in order to forecast how the costs will be altered with various levels of activity.

As there is an increase in the mixed cost item, the fixed cost component will not change but the variable cost component will rise. Likewise, if there's a reduction in the mixed cost item, the fixed cost remains the same since it doesn't varies but the variable cost reduces. The formula for this relationship is:

Y = a + bx where

Y = Total cost

a = Total fixed cost

b = Variable cost per unit of activity

x = Number of units of activity

The mixed cost in the question is the employees compensation since it contains a flat salary which is a fixed cost and a commission which is the variable cost. The flat salary does not vary while the commission varies with the employees output.