Question

able/fixed costs to changes in activity? What is the 7. What is the reaction of total variable is to changes in activity W .. reaction of unit variable/fixed costs to changes in activity? brus. 2009.MDO - Variable cost F ixed Cost S Total Total mu នា , # of Units nozivib 10 bolo por Units # of Units Units no # of Units Within the # of Units relevant range 8. What are the differences between manufacturing and merchandising comp are their product costs, period costs, and inventory accounts: een manufacturing and merchandising companies? What

Answer 1

7. Variable costs are related to that cost which gets differentiated with the production of units. If the cost is variable in nature then that cost will be categorised under variable costing such as direct labour, direct materials, etc. Variable cost is directly related to the output produced. However, the nature of fixed cost is not same. Fixed cost will remain same irrespective of the quantity produced such as salaries, Rent, etc. Fixed cost is indirectly related to the output produced.

So if there is any change in activity variable cost will accordingly gets changed as it is directly related to the cost of production. However, fixed cost will remain unchanged unless there is big change in the productions such as change of machinery.

The reaction of unit variable cost will change as per the change in the activity but the reaction of unit fixed cost will remain unchanged.

8. The difference between manufacturing and merchandising companies are as follows:

Manufacturing companies

• These companies are engaged in manufacturing products
• There is a difference between products produced and the raw materials.
• If the company is converting raw material into finished goods then the company would be categorised under manufacturing company.

Merchandising companies

• These companies are engaged in buying the products and selling the same in the higher price.
• The products are same unlike manufacturing companies as they only sell the products what they have purchased.
• There are two types of merchandising companies- retailer and wholesaler

Particulars	Manufacturing Company	Merchandising company
Product cost	Direct Material cost	Stock valuation
	Direct Labour cost
Period cost	Rent	selling and administration
	Depreciation	Rent
Inventory accounts	Raw material	maintenance of single class of inventory as there is no conversion of products
	Semi finished products
	Finished Products