Question

(pa5)wachowski company reported these cost data for the year 2017

(PA4) Listed as follows are various costs found in businesses. Classify each cost as a fixed or variable cost, and as a product and/or period cost. a. Wages of administrative staff b. Shipping costs on merchandise sold C. Wages of workers assembling computers d. Cost of lease on factory equipment e. Insurance on factory f. Direct materials used in production of lamps g. Supervisor salary, factory h. Advertising costs_ i. Property taxes, factory j. Health insurance cost for company executives k. Rent on factory

Answer 1

Product costs are those costs which are incurred at factory to produce required number of units. They may be direct or indirect in nature. Direct costs are those product costs that are directly attributable to products manufactured. In other words, these costs are avoidable costs in nature and are not expected to incur if there is no production. Examples are: Direct Materials (DM) and Direct Labor (DL). Indirect costs are those product costs that are not directly attributable to products manufactured but are common costs incurred in the factory. These costs are unavoidable costs. Examples: Factory insurance, Indirect materials, Indirect labor, etc. Period costs are those costs which are not incurred at factory during production process. In other words, these costs are incurred to carry out firm's operating activities such as selling and adminitrative expenses. These costs include even financial expenses such as interest expense, etc. Therefore, Fixed costs are those costs which would remain the same in total irrespective of level of production or sales. It is a committed cost to be incurred by the firm whether it carries out operations or not. Variable costs are those costs which would remain the same per unit irrespective of level of production or sales. It is an unit cost to be incurred by the firm only when the firm carries out its business operation.

Fixed variable Product Yes Period Yes Yes Yes Yes Yes Yes Yes Yes Yes a) Wages of administrative staff b) Shipping costs on merchandise sold c) Wages of workers assembling computers d) Cost of lease on factory equipment e) Insurance on factory f) Direct materials used in production of lamps g) Supervisor salary, factory h) Advertising costs i) Property taxes, factory j) Health insurance cost for company executives k) Rent on factory Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes