Question

Following is a list of various costs incurred in producing replacement automobile parts. With respect to the production and sale of these auto parts, classify each cost as either variable costs, fixed costs, or mixed costs. 1. Oil used in manufacturing equipment 2. Plastic 3. Property taxes, $165,000 per year on factory building and equipment 4. Salary of plant manager 5. Cost of labor for hourly workers 6. Packaging 7. Factory cleaning costs, $6,000 per month 8. Metal 9. Rent on warehouse, $10,000 per month plus $25 per square foot of storage used 10. Property insurance premiums, $3,600 per month plus $0.01 for each dollar of property over $1,200,000 11. Straight-line depreciation on the production equipment 12. Hourly wages of machine operators 13. Electricity costs, $0.20 per kilowatt-hour 14. Computer chip (purchased from a vendor) 15. Pension cost, $1.00 per employee hour on the job

Answer 1

Answer:

Oil used in manufacturing equipment 

Variable 

Plastic 

Variable 

Property taxes, $165,000 per year on factory building and equipment 

Fixed 

Salary of plant manager 

Fixed 

Cost of labor for hourly workers 

Variable 

Packaging 

Variable 

Factory cleaning costs, $6,000 per month 

Fixed 

Metal 

Variable 

Rent on warehouse, $10,000 per month plus $25 per square foot of storage used 

Mixed 

Property insurance premiums, $3,600 per month plus $0.01 for each dollar of property over $1,200,000 

Mixed 

Straight-line depreciation on the production equipment 

Fixed 

Hourly wages of machine operators 

Variable 

Electricity costs, $0.20 per kilowatt-hour 

Variable 

Computer chip (purchased from a vendor) 

Variable 

Pension cost, $1.00 per employee hour on the job 

Variable

Explanation:

Variable costs are cost that proportionately change with the changes in the activity base unit of production.

Fixed cost: cost that remain constant in total dollar amount irrespective to the change in the activity base unit of production.

Mixed cost: cost that possess characteristics of both fixed and variable costs.