Question

Classify the following expenses incurred by a fertilizer business according to cost classification (fixed cost, variable cost, mixed cost, direct material, direct labour, overhead cost and period cost)

i. Salaries of production workers

ii. Salaries of factory’s manager

iii. Commission of salesperson

iv.Depreciation of machinery in plant

v. Depreciation of office equipment

vi. Chemical used in the production

vii. Delivery expenses

viii. Indirect materials

Answer 1

Answer:

Fixed cost- It remains fixed regardless of production. Examples- Factory rent, Salary of factory workder.

Variable cost- It varies as per the production. Examples- Wages, direct material, labor, commission etc.

Mixed cost- That has the features of both; fixed and variable.

Direct material- Direct Material that is directly associated with production. Examples: Wood, sugar etc.

Direct labour- Labor that is indulged into producing company's goods or services. Examples: Supervisors

Overhead cost - All cost except direct material, direct labor and direct expenses. Examples- Depreciation, legal fee, rent etc.

Period cost- Cost that is related to a particular period. It is not directly related to the production. Examples- General cost, Selling and admin expense.

i. Salaries of production workers - Direct Labor

ii. Salaries of factory’s manager - Fixed cost

iii. Commission of salesperson - Variable cost

iv.Depreciation of machinery in plant - Overhead (manufacturing)

v. Depreciation of office equipment - Period cost

vi. Chemical used in the production - Direct material

vii. Delivery expenses - Period cost

viii. Indirect materials - Overhead (manufacturing)