2) Classify Costs (Pg. 163) Following is a list of various costs incurred in pro
ID: 2571128 • Letter: 2
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Explanation / Answer
Classification of costs
1. Property Taxes of $210,000 -These are fixed costs incurred by the company irrespective of the level of production and running hours of factory. These are required to be paid to the department whether factory is working or not.
2. Janitorial costs - This is the fixed cost incurred by the company on cleaning and maintaining the building and factory premises. These costs occur irrespective of level of production of output.
3. Metal - Metal is the direct raw material used in the manufacturing of the robot toy helicopter and these are directly related to the production of finished goods. It is a variable cost.
4. Packaging - Packaging is the variable cost incurred by the company on packing the finished goods. More the number of goods to be sold more will be the packing cost of the company.
5. Salary of Plant Manager - This is a mixed cost since it will include 2 parts. One is fixed monthly salary of the manager and other will be the variable overtime paid to the manager for extra hours worked. Fixed monthyl salary is required to be paid irrespective of production, however, overtime will be paid only for the extra hours worked by the manager in thee factory and is therefore variable cost component of his salary.
6. Oil used in manufacturing equipment - This is a variable cost which is incurred when machines and equipments are used in the production of the robot toy helicopter. If company stop producing the toy or reduce it's output level, then the cost of oil will also stop or get reduced as now the machine will run for less time.
7.Cost of labor for hourly workers - These are the casual workers of the company paid on the basis of hours worked and are not considered to be on the permanent payroll of the company. As a result, this is a variable cost incurred by the company.
8. Plastic - Similar to Metal, plastic is also considered to be direct raw material used by the company in manufucturing of the product and is therefore direct variable cost of the company.
9. Straight line depreciation -Depreciation is a non-cash expense incurred by the company due to wear and tear on the assets purchased. Depreciation is a fixed expense as the same is deemed to be incurred by the company once an asset is purchased and therefore, is charged in each accounting period. Whether or not company produces a product, depreciation is required to be charged once asset is purchased.
10. Computer Chip purchased from a vendor is a variable cost as it is fitted into the robot toy helicopter to remotely operate it. As level of production of robot toy increases, cost of computer chip will also increase as more chips will be required to be fitted.
11. Electricity cost - This is a variable cost incurred by the company on the basis of number of hours electrcity is used in the factory. If more units are produced, more hours electricity will be used in factory.
12. Rent on warehouse- this is a mixed cost as it includes two parts - one is the fixed monthly rentals which are to be incurred by the company irrespective of the level output. Second, is the storage used on the basis of per square feet which is a variable costs as it is directly related to the goods manufactured and stored in the warehouse.
13. Pension cost – This is a variable cost as it is related to the number of hour employee has spent on the job.
14. Hourly wages on machine operator - this is variable cost as it is related to the number hours a worker has spent on the machine operating it.
15. Property Insurance – This is a fixed cost as the same is required to be incurred irrespective of the level of output in the company.
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