1.For each type of cost below, provide a specific cost example, given the contex
ID: 2442426 • Letter: 1
Question
1.For each type of cost below, provide a specific cost example, given the context described. Also, provide a brief explanation of why your specific example fits the definition of that type of cost (e.g., for a., explain why the specific cost you selected is a variable cost).a.A variable cost at a trucking company.
b.A direct cost at a furniture manufacturing company.
c.A product cost at a pharmaceutical manufacturing company.
d.An opportunity cost in a fitness center wanting to diversify its offerings.
e.A step-function cost in a grocery store.
f.A committed cost in a financial (investment) services company.
g.A noncontrollable cost in the bakery division of a food processing company.
h.A differential cost in the decision of an appliance manufacturing company to either make a needed part or outsource its production.
i.A sunk cost in a restaurant’s decision to upgrade its kitchen equipment.
j.A discretionary cost at a hotel chain.
Explanation / Answer
a.A variable cost at a trucking company.
Fuel cost - it increase with the kilometer travelled. Paying attention to fuel tax rates and which States you buy your fuel can make a difference of several hundred dollars a year. Slowing down can increase your fuel mileage and decrease wear on tires and your truck, you balance that with getting the load to its destination in a timely manner.
b.A direct cost at a furniture manufacturing company.
Cost of Wood (in case of wooden furniture) / sheet metal (in case of metal furniture). The cost of wood / sheets used in manufacturing furnitures viz. chair,tables,almirah etc. is directly attributable to the finished product. In other words, cost of wood/sheets used can be easily tarced.
c.A product cost at a pharmaceutical manufacturing company.
Cost of materials (ingredients), cost of direct labor operating machine to produce tablets,capsules
or liquids, cost of packing labors (manufacturing overhead).
d.An opportunity cost in a fitness center wanting to diversify its offerings.
Cost of instructor with Yoga knowledge is the opportunity cost in a fitness center wanting to offer Yoga in its center.
e. A step-function cost in a grocery store.
Adding services such as a grocery store opening on Sundays. Rent of grocery store is averaged out over the additional units of volume sold on Sundays.
f.A committed cost in a financial (investment) services company.
Salary of organizational personnel whom top management deem permanent.
g. A noncontrollable cost in the bakery division of a food processing company.
Counter Salesmen Salaries is a noncontrollable cost.
h.A differential cost in the decision of an appliance manufacturing company to either make a needed part or outsource its production.
Difference of Cost of producing Forks within the company and Cost of outsourcing the Fork.
i.A sunk cost in a restaurant’s decision to upgrade its kitchen equipment.
Cost of old Kitchen equipments
j.A discretionary cost at a hotel chain.
Cost of advertising is a discretionary cost at a hotel chain. The hotel chain has full discretion over advertising cost as it likes to advertise on TV channels, newspapers or Roadside hoardings or on all.
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