Question

consumer focus is a marketing research firm that organizes focus groups for consumer – product
companies. Each focus group has eight individuals who are paid $50 per session to provide comments
om new products. these focus groups meet in hotels and are led by a trained, independent, marketing
specialists hired by consumer focus. Each specialist is paid a fixed retainer to conduct a minimum
number of sessions and a per sessions fee of $2000. A consumer focus staff member attends each
session to ensure that all the logistical aspects run smoothly.
Required: - Classify each of the following cost items as:
a. Direct or indirect (D or I) costs with respect to each individual focus group.
b. Variable or fixed (V or F) costs with respect to how the total costs of consumer focus change as
the number of focus groups conducted changes.( if in doubt, select on the basis of whether the
total costs will change substantially if there is a large change in the number of groups
conducted.)
You will have two answers (D or I; V or F) for each of the following items. And explain your
reasoning
A. Payment to the individuals in each focus group to provide comments on new products
B. Annual subscription of consumer focus to consumer reports magazine
C. Phone calls made by consumer focus staff member to confirm individuals will attend a
focus group session (Records of individuals calls are not kept)
D. Retainer paid to focus group leader to conduct 20 focus groups per year on new medical
products
E. Meals provided to participants in each focus group
F. Lease payment by consumer focus for corporate office
G. Cost of tapes used to record comments made by individuals in a focus group session
(these tapes are sent to the company whose products are being tested.)
H. Gasoline costs of consumer focus staff for company- owned vehicles ( staff members
submit monthly bills with no mileage breakdowns.)

Answer 1

DIRECT COST: Direct cost are the cost which can be easly identified and directly related to the production of goods and service procuced by the organisation.

EX:Direct labour ,Direct raw material etc.

INDIRECT COST: Indirect cost are the cost which cannot be identified and not directly related to the production of goods and service procuced by the organisation.

EX:Office expenses,telephone expenses

VARIABLE COSTS:Variable costs are the cost which vary or change according to production.The changes occurs due to changes in the level of of production it raises with production and decreases with the production

EX:Sales commision,Utility costs etc.,

FIXED COST:Fixed cost are the cost that does not change with the quatity of out put .These are fixed and doesn't changes as if the variable cost.

EX:Rent of building,insurance premium etc.,

a)Payment to individual:This ia a direct cost as it is is dircetly effects to marketing of sales of production .It is also variable cost because the amount paid to individual which may change and number of individual may also increase or decrease.

b)Annual subscription:It is an indirect cost because it is not directly related tomarketing of sales.so it is an indirect cost.Its is fixed in nature as the amount of annula suscripition will not vary and total cost remain same.

c)phone call :Phone calls made are indirectly related to sales of product the may increase if they attain the secition. And it is fixed as the amount paid to call a person will not the total cost as the telephone expenses are fixed

d)Retainer pay to fous group:It is indirect because it dosenot related to production of producted but indrectly related to marketing for sales of product  as it increases awarness of product.It is fixed as it does increase with sales of product no  effect on total cost.

e)Meals cost: Meals provided to focus group not directly related marketingg ofto sales but related to promotion of product.It is varable because it is related to number of individual in the group results in change in the total cost.

f)Lease payment:It is indirect cost as the lease amount is not directly included in the marketing or production of product.It is fixed as weather we may use it or not we have to pay lease every monthy so it is a fixed cost.

g)cost of tape:this is a direct cost it is related to marketing of companies and it is variable cost because it doed not change the total cost  

h)Gasonline cost:Gasonlie cost is indirectly related to promotion or marketing so it is a indirect cost and it is fixed as there were no breakbowns in mileage and it doesnot effect total cost for the company.

COST ITEMS	CLASSIFICATION(D or I)	CLASSIFICATION(V or F)
a)Payment to individuals	direct	variable
b)Annual subscripition	Indirect	Fixed
C) phone call made	indirect	fixed
d)Retainer paid	Indirect	fixed
e) Retainer meals cost	Indirect	variable
f)leas payment	indirect	fixed
g)cost of tape	direct	Variable
h)Gasoline costs	indirect	Fixed