Problem 120 Variable and Fixed Costs Subtleties of Direct an

Problem 1-20 Variable and Fixed Costs; Subtleties of Direct and Indirect Costs [LO1-1, LO01-4] Madison Seniors Care Center is a nonprofit organization that provides a variety of health services to the elderly. The center is organized into a number of departments, one of which is the Meals-On-Wheels program that delivers hot meals to seniors in their homes on a daily basis. Required: A number of costs of the center and the Meals-On-Wheels program are listed below. For each cost listed below, indicate whether it is a direct or indirect cost of the Meals-On-Wheels program, whether it is a direct or indirect cost of particular seniors served by the program, and whether it is variable or fixed with respect to the number of seniors served

Solution

Answer:

Direct or Indirect Cost of the Meals-On-Wheels Program

Direct or Indirect Cost of Particular Seniors Served by the Meals-On-Wheels Program

Variable or Fixed with Respect to the Number of Seniors Served by the Meals-On-Wheels Program

Item

Description

Direct

Indirect

Direct

Indirect

Variable

Fixed

a.

The cost of leasing the meals-on-wheels van

Direct

Indirect

Fixed

b.

The cost of incidental supplies such as salt, pepper, napkins, and so on

Direct

Indirect*

Variable

c.

The cost of gasoline consumed by the meals-on-wheels van

Direct

Indirect

Variable

d.

The rent on the facility that houses Madison Seniors Care Center, including the meals-on-wheels program

InDirect

Indirect*

Fixed

e.

The salary of the part-time manager of the meals-on-wheels program

Direct

Indirect

Fixed

f.

Depreciation on the kitchen equipment used in the meals-on-wheels program

Direct

Indirect

Fixed

g.

The hourly wages of the caregiver who drives the van and delivers the meals

Direct

Direct

Variable

h.

The costs of complying with health safety regulations in the kitchen

Direct

Indirect

Fixed

i.

The costs of mailing letters soliciting donations to the meals-on-wheels program

Direct

Indirect

Fixed

*These costs could be direct costs of serving particular seniors.

		Direct or Indirect Cost of the Meals-On-Wheels Program		Direct or Indirect Cost of Particular Seniors Served by the Meals-On-Wheels Program		Variable or Fixed with Respect to the Number of Seniors Served by the Meals-On-Wheels Program
Item	Description	Direct	Indirect		Direct	Indirect		Variable	Fixed
a.	The cost of leasing the meals-on-wheels van	Direct				Indirect			Fixed
b.	The cost of incidental supplies such as salt, pepper, napkins, and so on	Direct				Indirect*		Variable
c.	The cost of gasoline consumed by the meals-on-wheels van	Direct				Indirect		Variable
d.	The rent on the facility that houses Madison Seniors Care Center, including the meals-on-wheels program		InDirect			Indirect*			Fixed
e.	The salary of the part-time manager of the meals-on-wheels program	Direct				Indirect			Fixed
f.	Depreciation on the kitchen equipment used in the meals-on-wheels program	Direct				Indirect			Fixed
g.	The hourly wages of the caregiver who drives the van and delivers the meals	Direct			Direct			Variable
h.	The costs of complying with health safety regulations in the kitchen	Direct				Indirect			Fixed
i.	The costs of mailing letters soliciting donations to the meals-on-wheels program	Direct				Indirect			Fixed