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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Classify costs

Following is a list of various costs incurred in producing replacement automobile parts. With respect to the production and sale of these auto parts, classify each cost as variable, fixed, or mixed.

1. Cost of labor for hourly workers

2. Factory cleaning costs, $6,000 per month

3. Hourly wages of machine operators

4. Computer chip (purchased from a vendor)

5. Electricity costs, $0.20 per kilowatt-hour

6. Metal

7. Salary of plant manager

8. Property taxes, $165,000 per year on factory building and equipment

9. Plastic

10. Oil used in manufacturing equipment

11. Rent on warehouse, $10,000 per month plus $25 per square foot of storage used

12. Property insurance premiums, $3,600 per month plus $0.01 for each dollar of property over

13. Straight-line depreciation on the production equipment

14. Pension cost, $1.00 per employee hour on the job

15. Packaging

To determine

Variable costs: These are the costs that proportionately change with the changes in the activity base such as units of production Common examples of variable costs are direct materials and direct labor costs.

Fixed Costs: These are the costs that remain constant in total dollar amount irrespective to the changes in the activity base such as units of production. Common examples of fixed costs are factory overhead costs and straight-line depreciation expenses.

Mixed Costs: It refers to those costs that possess has characteristics of both fixed cost and variable cost. Common examples of mixed costs are manufacturing overhead and selling and administrative expenses.

To classify: the given costs as variable cost, fixed cost, and mixed cost.

Explanation

Classify the given costs as fixed cost, variable cost, and mixed cost.

1.

Cost of labor for hourly workers is a variable cost. This is because, it is a direct labor cost to be incurred for making finished goods (auto parts) ready to be sold. The cost would change with the change in the number of hours worked.

2.

Factory cleaning costs, $6,000 per month is a fixed cost. This is because, the amount of cleaning cost of the factory remains constant as it is not affected by the number of units produced or sold.

3.

Hourly wages of machine operators is a variable cost. This is because, it is a direct labor cost to be incurred for making finished goods (auto parts) ready to be sold. The cost would change with the change in the number of hours worked.

4.

Computer chip (purchased from a vendor) is a variable cost. This is because, it is a direct material cost to be used for making finished goods (auto parts) ready to be sold. The cost would change with the change in the number of units to be produced.

5.

Electricity costs of $0.20 per kilowatt-hour is a variable cost. This is because, it is a factory overhead cost incurred for factory and machines used to make finished goods (auto parts) ready to be sold. The cost would change with the change in the number of hours the factory and the machines used for production.

6.

Metal is a variable cost. This is because, it is a direct material cost to be used for making finished goods (auto parts) ready to be sold. The cost would change with the change in the number of units to be produced.

7.

Salary of plant manager is a fixed cost. This is because, the cost of the salary would remain constant irrespective to the number of units produced or sold.

8.

Property taxes, $165,000 per year on factory building, and equipment is a fixed cost. This is because, the cost of the property taxes would remain constant irrespective to the number of units produced or sold.

9.

Plastic is a variable cost. This is because, it is a direct material cost to be used for making the finished goods (auto parts) ready for sale...

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