Question

Company X classifies the total transportation costs paid to deliver goods to customers as a mixed cost with respect to the units sold. During the current year, the units sold have decreased unexpectedly, but are still within the relevant range. Which of the following statement is (are) correct about the transportation costs? Group of answer choices The per unit transportation costs increase as the units sold decrease. The total transportation costs increase proportionally to the decrease of units sold. The per unit variable component of transportation costs remains constant. The per unit transportation costs decrease proportionally to the decrease of units sold. The total transportation costs decrease proportionally to the decrease of units sold.

Answer 1

Answer:

The per unit transportation costs increase as the units sold decrease.

The per unit variable component of transportation costs remains constant.

Explanation:

mixed costs are costs that share both a fixed component and a variable one, e.g. transportation costs generally are mixed because depreciation, insurance and sometimes even maintenance costs are fixed, while gasoline and drivers' wages are variable.

If total units transported decrease, then the fixed part of transportation costs will increase on a per unit basis. Even if the variable part remains stable, total costs per unit will still increase.

We can plug in some numbers:

Fixed expenses = $1,000 per month

variable costs = $2 per package

total packages sent during month 1 = 500

total costs = $1,000 + ($2 x 500) = $2,000

costs per unit = $4

if suddenly the number of packages delivered drops to 300

total costs = $1,000 + ($2 x 300) = $1,600

costs per unit = $5.33

a 40% decrease in the number of packages delivered resulted in a 33.33% increase in costs per unit delivered.