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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

Identify fixed and variable costs

Intuit Inc develops and sells software products for the personal finance market, including popular titles such as Quickbooks and TurboTax. Classify each of the following costs and expenses for this company as either variable or fixed to the number of units produced and sold:

a. Packaging costs

b. Sales commissions

c. Property taxes on general offices

d. Shipping expenses

e. Straight-line depreciation of computer equipment

f. President's salary

g. Salaries of software developers

h. Salaries of human resources personnel

i. Wages of telephone order assistants

 j. Users' guides

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.

To identify: the given costs as variable cost or fixed cost.

Explanation

Identify the given costs as variable cost or fixed cost.

a.

Packaging is a variable cost. This is because, it is a direct material cost incurred for packaging the finished goods (software products) to make it ready for sale. The cost would change with the change in the number of units to be produced.

b.

Sales commissions is a variable cost. This is because, it is a manufacturing overhead cost incurred for providing to the salespersons on each unit sold. The sales commissions’ amount would change with the change in the number of units to be sold.

c.

Property taxes on general offices 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.

d.

Shipping expenses is a variable cost. This is because, it is a manufacturing overhead cost incurred for shipping the finished goods (software products) for delivery to the customers. The cost would change with the change in the number of units shipped for delivery.

e.

Straight-line depreciation of computer equipment is a fixed cost. This is because, the depreciation amount under straight-line method remains constant each year...

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