COST ACCOUNTING
VARIABLE COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the $20 million payment that the firm pays each year for accounting services
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the cost of the steel that is used in producing automobiles
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the rent that the firm pays for office space in a suburb of St. Louis
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All of the above are correct.
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Detailed explanation-1: -In the given scenario, the cost of steel will vary with the number of automobiles produced, and hence it is an example of variable cost.
Detailed explanation-2: -Operating costs are also called variable costs because they are only incurred if you operate the vehicle. These costs vary directly with the number of miles or hours driven and include fuel, tires, maintenance, and repairs.
Detailed explanation-3: -Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees. In some accounting statements, the Variable costs of production are called the “Cost of Goods Sold.”
Detailed explanation-4: -Fixed costs (ownership costs) include insurance, license, registration, taxes, depreciation, and finance charges.
Detailed explanation-5: -Vehicle operating costs refer to costs that vary with vehicle usage, including fuel, tires, maintenance, repairs, and mileage-dependent depreciation costs (Booz Allen & Hamilton, 1999).