Question

(b) With examples differentiate direct and indirect costs. (6 Marks) (c) Describe each of the following costs as fixed, variable or semi-variable (mixed): 1 The cost is P500 per unit at a production level of 50 units, and P500 per unit at a production level of 100 units. (2 marks) 2 The cost is P500 in total at a production level of 50 units, and P1.000 in total at a production level of 100 units. (2 marks) 3 The cost is P500 in total at a production level of 5 units, and P100 per unit at a production level of 10 units. (2 marks)

Answer 1

differentiation

	direct	indirect cost
1.	They can be easily traced to production of a unit example material cost	they cannot be traced to a particular product example accounting staff salaries
2.	direct costs are product costs like labor cost	indirect costs are period costs like rent of office
3	direct costs are also called prime cost	indirect costs are called overhead costs
4	examples of direct costs are direct material, direct wages	examples of indirect costs Rent , advertisement, office staff salaries etc.

2.The costs that are constant/unchanged per unit are variable costs

the costs that are constant in total are fixed costs

the cost that is neither constant per unit nor in total are mixed cost

a.cost P500 is constant per unit and changes in total with change in units so it is a variable cost.

b.p500/ 50=P10 PER UNIT

P1000/100=P10 PER UNIT

this is also a variable cost as the cost per unit is constant

c.P500/5=100

P100/10=10

THIS IS NIETHER CONSTANT PER UNIT NOR IN TOTAL SO IT IS A MIXED COSTS.