Question

EXERCISE 1-17 Classifying Variable and Fixed Costs and Product and Period Costs L01-3, 101-4 Below are listed various costs that are found in organizations. 1. Hamburger buns in a Wendy's restaurant. 2. Advertising by a dental office. 3. Apples processed and canned by Del Monte. 4. Shipping canned apples from a Del Monte plant to customers. 5. Insurance on a Bausch & Lomb factory producing contact lenses. 6. Insurance on Nucor's corporate headquarters. 7. Salary of a supervisor overseeing production of printers at Ricoh. 8. Commissions paid to automobile salespersons. 9. Depreciation of factory lunchroom facilities at a General Electric plant. 10. Steering wheels installed in Tesla electric vehicles. Required: Using the table shown below, describe each of the costs mentioned above in two ways. In terms of cost classifications for predicting cost behavior (column 1), indicate whether the cost is fixed or variable with respect to the number of units produced and sold. With respect to cost classifications for preparing financial statements (column 2), indicate whether the item is a product cost or period cost (selling and administrative cost). Cost Classifications for: (1) (2) Predicting Preparing Cost Item Cost Behavior Financial Statements

Answer 1

**Variable Costs: Variable costs are those cost that are incurred by the firm as a result of the use of variable factor inputs. They are dependent of the level of input.

**Fixed Costs: Fixed costs are those cost that are incurred as a result of the use of fixed factor inputs, It remains fixed at any level of output in the short run.

**Product Costs: DIrect Materials + Direct Labors + Direct Expenses + Manufacturing Overhead.

**Period Costs: Selling and Administrative Overhead.

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Q1. Sl.no Cost Item 1 Hamburger buns in a wendy restaurant 2 Advertising by a dental office. 3 Apples processed and canned by Del Monte. 4 Shipping canned appled to customers. 5 Insurance on baush, factory producing lenses 6 Insurance on nucor's corporate HQ 7 Salary of supervisor of production of printers 8 Commissions paid to automobile salespersons 9 Depreciation of factory lunchroom facilities 10 Steeling wheels installed in Tesla electric vehicles Prediciting Cost Behaviour Variable Cost Fixed Cost Variable Cost Variable Cost Fixed Cost Fixed Cost Fixed Cost Variable Cost Fixed Cost Variable Cost Preparing Financial Statements Product Cost Period Cost Product Cost Period Cost Product Cost Period Cost Product Cost Period Cost Product Cost Product Cost Q2. Amount Particulars Sales Less: Variable Expenses Contribution Margin Less: Fixed Expenses Net Operating Income $ $ $ $ $ 456,000 [$380,000+20%] 228,000 228,000 116,000 112,000 Total Contribution Margin = $228,000

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