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Classifying Costs as Variable, Fixed or Mixed

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With respect to the production and sale of these toy helicopters, classify each cost as either variable, fixed, or mixed.

1. Oil used in manufacturing equipment
2. Hourly wages of inspectors
3. Electricity costs, $.20 per kilowatt-hour
4. Property insurance premiums, $1500 per month plus 0.006 for each dollar of property
5. Janitorial Costs, $4000 a month
6. Pension cost, $.80 per employee hour on the job
7. Computer chip (purchased from a vendor)
8. Hourly wages of machine operator
9. Straight line depreciation on the production equipment
10. Meal
11. Packaging
12. Rent on warehouse, $10,000 per month plus $10 per sq ft of storage used
13. Plastic
14. Property Taxes, $100,000 per year on factory building and equipment
15. Salary of plant manager

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Diamond Inc has decided to use the high low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

Units Produced Total Costs
7,500 600,000
12,500 725,000
20,000 800,000

a. Determine the variable cost per unit and the fixed cost
b. Based on the part (a), estimate the total cost for the 10,000 unit of production.

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The solution classifies costs as variable, fixed or mixed.

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