Consider the Six Costs That Follow

question 62

Essay

Consider the six costs that follow.
1. Advertising and promotion costs of a do-it-yourself retailer
2. Surgical supplies used in a hospital's operating room
3. Aircraft depreciation charges of an airline
4. Utility charges that include a minimum-use fee, for a small business
5. Annual business licensing fee paid by a daycare center
6. Truck fuel consumed by a road construction company
Required:
A. Classify each of these costs as variable, committed fixed, discretionary fixed, or semivariable.
B. Briefly describe the behavior of a per-unit variable cost as activity changes.
C. What elements are present in a semivariable cost that cause it to behave in a semivariable manner?
D. Generally speaking, does management have more flexibility when dealing with committed fixed costs or discretionary fixed costs?

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Definitions:

Cash Basis Accounting

An accounting method that records revenues and expenses when cash is actually received or paid, rather than at the time they are incurred.

Rental Payments

Periodic payments made by a lessee to a lessor for the use of a property, space, or equipment.

Landlord

An individual or entity that owns real estate which is rented or leased to another party, known as a tenant.

Prepaid Expense

Costs that have been paid in advance for goods or services to be received in the future, recognized as assets on the balance sheet until consumed.