Classify each cost as being either variable or fixed with re

Classify each cost as being either variable or fixed with respect to the number either a period or a product cost of units produced and sold. Also classify each cost as Preparing Predicting CostFinancial Cost ltern … … Behavior Statements . Hamburger buns in a Wendy\'s restaurant. 2 Advertising by a dental office. 3. Apples processed and canned by Del Monte 4. Shipping canned apples from a Del Monte plant to customers 5. Insurance on a Bausch & Lomb factory producing contact lenses 6. Insurance on 1BMs corporate headquarters Salary of a supervisor overseeing production of printers at Hewlett- Packard. 9 Depreciation of factory lunchroom facilities at a General Electric plant 10. Steering wheels installed in BMWs.

Solution

For understanding the concept of variable and fixed, we need to put a simple question. Does the cost increase if production is increased. If the answer is YES ---- it is variable and If the answer is NO --- it is Fixed. In the above question we see (1) hamburgers buns, (3) apples (4) shipping cost, (8) sales commissons and (10) steering wheels are all having the behavior of increase or decrease for variation in production and sale. So they are called variable costs.

For understanding the concept of period cost and product cost, we have understand that all costs like direct material, direct labour and all factory overheads are product costs. All other overheads like administrative and selling and distribution shall be period costs. Thus it is easy to remember that what is not a product cost is the period cost. Item (5) and Item (6) above gives a clear understanding. Insurance on factory is product cost but Insurance on corporate office is period cost.

1	Hamburger buns	Variable	product cost
2	Advertising	Fixed	Period cost
3	Apples processed	Variable	product cost
4	Shipping canned apples	Variable	Period cost
5	Insurance factory	Fixed	Product cost
6	Insurance on IBM	Fixed	Period cost
7	Salary of a supervisor	Fixed	Period cost
8	Commissons paid	Variable	Period cost
9	Depreciation	Fixed	Period cost
10	Steering wheels	Variable	product cost