Question

Pangle Health Food Store sells a variety of herbal supplements and natural skin care items. Pangle purchases the items from leading manufacturers. Identify each of the following costs incurred by Pangle in terms of its cost behavior – variable, fixed, mixed, or step.

1. Dried fruits for making “All natural trail mix”
2. Annual salary for sales clerk
3. Weight loss supplements packaged in bottles of 100 pills per bottle
4. Shipping charges for vitamin tablets (billed in 100 pound increments)
5. Telephone charges (base rate plus usage)
6. Advertising (annual contract with newspaper for one ad per week)
7. Salary for Cindi Pangle (president of company)
8. Sales bonus on body lotions of $1 per 100 sales
1. Sales bonus on body power of $0.10 per item sold
10. Straight line depreciation on store fixtures

Answer 1

a). Variable cost - Directly proportional to production units.

b). Fixed cost - Doesn't change through out the year.

c). Variable cost - Changes with no. of units.

d). Step cost - Cost increases with increase in quantity.

e). Mixed cost- Both fixed & variable cost is included.

f). Fixed cost - Cost doesn't changes.

g). Fixed cost - fixed salary is paid.

h). Step cost - cost increases for every 100 sales.

i). Variable cost - changes with sales quantity.

j) Fixed cost - Depreciation doesn't changes over life of asset.

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