Various costs associated with the operation of factories are given below. Classi

Question

Various costs associated with the operation of factories are given below. Classify each cost as either variable or fixed with respect to the number of units produced and sold. Also indicate whether each cost would typically be treated as a direct cost or an indirect cost with respect to units of product. List each numbered item with either a "V" for variable or an "F" for fixed and either a "D" for direct cost or "I" for indirect cost so for example: 1. VD, 2. FI, etc.

1. Electricity to run production equipment
2. Rent on a factory building
3. Cloth used to make drapes
4. Production superintendent's salary
5. Wages of laborers assembling a product
6. Depreciation of air purification equipment used to make furniture
7. Janitorial salaries
8. Peaches used in canning fruit
9. Lubricants for production equipment
10. Sugar used in soft-drink production
11. Property taxes on the factory
12. Wages of workers painting a product
13. Depreciation on cafeteria equipment
14. Insurance on a building used in producing helicopters
15. Cost of rotor blades used in producing helicopters

Explanation / Answer

Direct materials used (wood and glass) (Variable) (Product - Direct) Administrative office salaries (Fixed) (Selling and Administrative) Factory supervision (Fixed) (Product - Indirect) Sales commissions (Fixed) (Selling and Administrative) Depreciation, factory building (Fixed) (Product - Indirect) Depreciation, administrative office equipment (Fixed) (Selling and Administrative) Indirect materials, factory (Variable) (Product - Indirect) Factory labor (cutting and assembly) (Variable) (Product - Direct) Advertising (Fixed) (Selling and Administrative) Insurance, factory (Fixed) (Product - Indirect) Administrative office supplies (billing) (Fixed) (Selling and Administrative) Property taxes, factory (Fixed) (Product - Indirect) Utilities, factory (Variable) (Product - Indirect)

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