menu_book CIMA P1 - Management Accounting
▼ Module 1: Cost Classification
assignment Q1: Fixed vs Variable Costs Current
assignment Q2: Direct vs Indirect Costs Pending
assignment Q3: Cost Behavior Analysis Pending
Course Progress
3 of 15 completed 20%
Question 1: Fixed vs Variable Costs 00:00

Scenario: ABC Manufacturing produces widgets. They have provided you with the following cost information for the last 6 months:

  • Rent for factory building: $10,000/month
  • Raw materials: $5 per widget
  • Factory supervisor salary: $6,000/month
  • Direct labor: $8 per widget
  • Utilities: $2,000 base + $1 per widget

Question: Classify each cost as either fixed, variable, or mixed. Explain your reasoning for each classification and discuss how this affects break-even analysis.

Your Answer
chat AI Collaboration Discussing: Q1
smart_toy
AI Tutor 2:45 PM
Hi! I'm here to help you with this cost classification question. I've reviewed your answer and I think you're on the right track! Your classifications are correct. Would you like me to provide feedback on how to strengthen your explanation of the break-even analysis impact?
person
You 2:46 PM
Yes, please! I'm not sure how to explain the break-even analysis part clearly.
smart_toy
AI Tutor 2:46 PM
Great! For break-even analysis, focus on these key points:

1. Total Fixed Costs = $10,000 + $6,000 + $2,000 = $18,000
2. Variable Cost per Unit = $5 + $8 + $1 = $14
3. The mixed cost needs to be separated into its components

Try explaining how changes in production volume affect total costs differently. What happens to cost per unit as production increases?