Question

PART THREE:

Jordan Leigh has agreed to take a co-op student, Janet APlus for a 3-month period and has provided them the following project. She wants, Janet to identify each cost item to be fixed or variable, based on the number of units produced or sold, and then whether it would be a selling cost, an administrative cost, or a product cost. If it is a product cost indicate whether it would typically be treated as a direct or an indirect cost with respect to units of product.

Below is the format Jordan would like to see:

Cost Item	Variable or Fixed	Selling Cost	Administrative Cost	Product Cost Direct Indirect

The following is the list of items that Janet will need to classify:

Electricity used in manufacturing plant

Property Taxes on warehouses used to store finished goods Executive life insurance

Depreciation, executive vehicle Sales Manager’s salary Advertising costs

Lubricants for production equipment Packing supplies for shipping products Billing costs

Steel used in the manufacturing process

Answer 1

Here's the classification for each item with appropriate explanation:

Cost Item	Variable or Fixed	Selling Cost	Administrative Cost	Product Cost
				Direct	Indirect
Electricity used in Manufacturing Plant	Variable as it is varies depends on the Volume of production	N/A	N/A	N/A	It is indirect cost, as it cannot be specifically mentioned towards any particular product or unit consumed
Property Taxes on warehouses used to store finished goods	Fixed cost as it is not directly related to volume of production	N/A	N/A	N/A	It is indirect cost, as it cannot be specifically mentioned towards any particular product or unit consumed
Executive life insurance	Fixed cost as it is not directly related to volume of production	N/A	Executive belongs to office administration; hence it is administrative cost	N/A	N/A
Depreciation-Executive Vehicle	Fixed cost as it is not directly related to volume of production	N/A	Executive belongs to office administration; hence it is administrative cost	N/A	N/A
Sales Manager’s salary	Fixed cost as salary per month are fixed	Sales man is keyperson in increasing or decreasing overall sales of a company; hence it is Selling cost	N/A	N/A	N/A
Advertising costs	Fixed cost as it is not directly related to volume of production	It is directly related to increase/decrease in sales; hence it is selling cost	N/A	N/A	N/A
Lubricants for production equipment	Variable as it is varies depends on the Volume of production	N/A	N/A	N/A	It is indirect cost, as it cannot be specifically mentioned towards any particular product or unit consumed
Packing supplies for shipping products	Variable as it is based on the Volume of Sales	N/A	N/A	Direct cost, as it can be specified to each unit of sale	N/A
Billing costs	Variable as it is based on the Volume of Sales	It is directly related to sales; hence it is selling cost	N/A	N/A	N/A
Steel used in the manufacturing process	Variable as it is varies depends on the Volume of production	N/A	N/A	Direct cost, as it can be specified to each unit of production	N/A