Question

For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it is a direct cost or an indirect cost with respect to units of product.

Answer 1

The cost affected by the production of units is known as a variable cost. The cost does not vary with the units produced is a fixed cost. The cost is related to selling and storage of the finished goods are selling costs.

Administrative cost

The cost is not affected by units produced and is related to office premises and controlling an organization is an administrative cost. The cost which varies with the production of units and is incurred to convert raw material into finished goods is manufacturing cost.

The manufacturing cost is directly affected by the units produced is the direct cost and the manufacturing cost is not affected by the units produced is indirect.

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