Question

ERPSim Cost Classification Assignment

In managerial accounting, costs are classified into fixed, variable or mixed costs (based on behavior); product or period costs (for external reporting); and direct or indirect costs (based on traceability). Classification of costs based on behavior helps in cost-volume-profit analysis. Classification based on traceability is important for accurate costing of jobs and units produced. Classification for the purpose of decision-making is important to help management identify costs which are relevant for a decision.

This exercise is designed to familiarize you with some of the common costs associated with the ERPSim Game. Understanding how to classify these costs will give you a better idea to forecast, control and report costs in the game or in an organization. Refer to the Participant’s Guide for more information on the individual costs.

Instructions: Recreate the chart below in Excel, and for each cost, indicate whether it is:

(a) Fixed, variable[1] or mixed

(b) Product or period

(c) Direct or indirect

Cost	Product	Period	Variable	Fixed	Mixed	Direct	Indirect	Cost driver
Labor	X			X		X		# of employees
Materials
Depreciation (M/E)
Shipping
Warehousing
Interest
Advertising
SG&A
Manufacturing overhead

[1] Variable costs are the costs vary with respect to units produced/sold in the short-run.

Answer 1

Solution:
Cost	Product	Period	Variable	Fixed	Mixed	Direct	Indirect	Cost driver
Labor	Yes		Yes			Yes		# of employees
Materials	Yes		Yes			Yes
Depreciation (M/E)		Yes		Yes			Yes
Shipping		Yes	Yes			Yes
Warehousing		Yes			Yes		Yes
Interest		Yes		Yes			Yes
Advertising		Yes		Yes			Yes
SG&A		Yes			Yes		Yes
Manufacturing Overhead	Yes				Yes	Yes		Labor hours/Machine hours