Answer :
Answer:
c.Utilities expense is a mixed cost and rent expense is a fixed cost
Explanation:
Based on the information:
1,000 units of output 5,000 units of output
Total Cost/Unit Total Cost/Unit
Direct materials $5,000 $5.00 $25,000 $5.00
Utilities expense $1,000 $1.00 $3,750 $0.75
Rent expense $4,000 $4.00 $4,000 $0.80
Total Rent expense remains constant at 5,000 units of output as it is at 1,000 units of output ($4,000). So we know that rent expense is a fixed cost for Seacrest Enterprises.
Utilities expense has changed at 5,000 units of output so it is not a fixed cost and the cost/unit has also decreased to $0.75 so it is a mixed cost.
So now we look at all the given options:
a.Both direct materials and rent expense are variable costs. (wrong, as rent expense is not a variable cost but a fixed cost)
b.Utilities expense is a mixed cost and rent expense is a variable cost.
(wrong, as rent expense is not a variable cost but a fixed cost)
c.Utilities expense is a mixed cost and rent expense is a fixed cost. (CORRECT)
d.Direct materials is a fixed cost and utilities expense is a mixed cost. (wrong,direct material is not a fixed cost since it has increased at 5000 units of output)
e.Both direct materials and utilities expense are mixed costs. (direct material is not a mixed cost but a variable cost)