Question

1. Identify which of the following costs are fixed and which are variable:

A. Regular maintenance on machinery and equipment
B. Property taxes on an administrative building
C. Basic raw materials used in production
D. Wages paid to temporary workers  
E. Factory fire insurance
F. Salaries paid to design engineers
G. Electricity for machinery and equipment in a plant  
H. Property taxes on a factory building
I. Heat and air conditioning for a plant
J. Sales commission

2. Identify the following costs as being either variable or fixed in respect to volume or level of activity:

A. Rent on a factory building
B. Electricity for heating and cooling the factory building
C. Paint shop superintendent's salary
D. Lubricants used for machines
E. CPU chips used in notebook production
F. Electricity for operation of machines
G. RFID (Radio-frequency identification) units embedded in the final product during shipping
H. Sugar used in ice cream production
I. Janitorial and custodial salaries
J. Labor costs in assembling a product

4. Identify the following costs into either being product cost or period cost:

A. Wages incurred in producing products
B. Leasing expense for forklift trucks in warehouse operation
C. Material handling cost related to production
D. Raw material costs
E. Fire insurance premium paid on factory buildings
F. Salary paid for plant manager
G. Interest expenses on borrowed funds
H. Salary paid for engineers
I. Income taxes paid
J. Electric bill for the warehouse operation

Answer 1

Fixed costs are those cost which is independent with the volume of the production and it is constant. Variable cost depends on the production units and it is not constant.

A) regular maintenance of machinery and equipment is a variable cost.

B) Property tax on an administrative building is fixed cost as the tax remain same and only change if the value of the property increases.

C) cost of basic raw material used in production is variable cost as the use of raw material varies with the number of production.

D) Wages paid to temporary workers are variable cost as wages will be changed with the number of temporary workers.

E) Factory fire insurance is fixed cost as the price of insurance will not be varied with the production.

F) Salaries paid to design engineers are fixed cost. As engineers are salaried persons and they are paid no matter how many hours they work.

g) Electricity for machinery and equipment in a plant is fixed cost as electricity does not depends on the number of production.

h) Property tax on a factory building is fixed cost.

i) Heat and airconditioning cost for a plant is fixed cost.

j) Sales commission is variable cost as commission depends on the number of sales.