Question

Using your personal knowledge or the internet to select a product or service.  The product or service does not have to be an actual product or service – it can be completely fictional.  For the selected product or service, identify at least 5 costs involved with the product or service and complete the following questions.  

Classify each cost as direct or indirect. 

Identify the cost behavior as either variable, fixed or mixed. 

Provide a brief (2 or 3 sentences) on the relationship of these costs. 

Please note you will need to make some assumptions about the product or service.  Internal product information is generally not available to the public so you will need to make some educated guesses about what may be required.  

My product i would use is a (Hair Brush )

Answer 1

My product is Hair Brush Straightener.

Following are the major 5 cost involved with the product or service:

1. Raw Material Cost - Raw material cost includes metal coil, plastic handle and rubber brustles. It is an direct variable cost which changes with the change in production. It is relevant cost for decision making process.
2. Cost of acquiring and maintaining Plant & Machinery - Plant & Machineries are acquired to initiate the production process. It includes one time cost (fixed cost) of acquiring plants and machineries and annual cost of maintaining plant & machineries, for e.g. overhauling cost, annual maintainance charges etc. Hence, cost of acquiring and maintaining plant & machinery is a mixed cost.
3. Rental income for land & building - Rental income for land & building is fixed cost. Also it is cost relating to time period rather than to the output of product/service. It is charged to expense in the period it is incurred. It is not included in the cost of goods sold.
4. Sales Promotion expenses/ Cost of Advertisement - Sales Promotion or Advertisement expenses are associated with creating the awareness about the product to its legible customer. It is fixed cost. Also it is cost relating to time period rather than to the output of product/service. It is charged to expense in the period it is incurred. It is not included in the cost of goods sold.
5. Product Development Costs - Product development costs includes market research cost, product feasibility study cost, etc. which are incurred before the product actually comes into existence. It is cost which do not change under given circumstances and donot play any role in decision making.