Can someone please tell me if these are variable cost, mixed costs, or fixed costs and why. I'm getting confused.

A. Consulting fee of $200,000 paid to industry specialist for marketing advice

B. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $50,000 plus $87 per hour.

C. Rental costs of warehouse, $5,000 per month plus $4 per square foot of storage used

D. Insurance premiums on property, plant, and equipment, $70,000 per year plus $5 per $30,000 of insured value over $8,000,000

E. Rent on experimental equipment, $50,000 per year

The terms are pretty descriptive. Variable costs are those which change if some other factor changes, such as the number of units of something produced or sold.

A fixed cost is just that; it's some given amount and will be that amount regardless of sales volume, production volume, or any other variable.

Mixed costs are those which contain both a variable component and a fixed component.

Given that, I'll bet you can answer A - E with minimal difficulty.

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Originally Posted by ash0508

Can someone please tell me if these are variable cost, mixed costs, or fixed costs and why. I'm getting confused.

A. Consulting fee of $200,000 paid to industry specialist for marketing advice

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variable, it is a one off

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B. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $50,000 plus $87 per hour.

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variable, one off

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C. Rental costs of warehouse, $5,000 per month plus $4 per square foot of storage used

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mixed will vary with volume

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D. Insurance premiums on property, plant, and equipment, $70,000 per year plus $5 per $30,000 of insured value over $8,000,000

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fixed, does not vary with volume

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E. Rent on experimental equipment, $50,000 per year

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Variable, who knows how long the experiment will last those items which are variable for reasons other than volume should not be included in overhead recovery rates but treated as administrative costs

next time please tell us what you think