Question

Classify Costs 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. Cost of labor for hourly workers
2. Factory cleaning costs, $6,000 per month
3. Hourly wages of machine operators
4. Computer chip (purchased from a vendor)
5. Electricity costs, $0.20 per kilowatt-hour
6. Metal
7. Salary of plant manager
8. Property taxes, $165,000 per year on factory building and equipment
9. Plastic
10. Oil used in manufacturing equipment
11. Rent on warehouse, $10,000 per month plus $25 per square foot of storage used
12. Property insurance premiums, $3,600 per month plus $0.01 for each dollar of property over $1,200,000
13. Straight-ine depreciation on the production equipment
14. Pension cost, $1.00 per employee hour on the job
15. Packaging

Answer 1

Answer:

1. Cost of labor for hourly workers - Variable cost

2. Factory cleaning costs - Fixed costs

3. Hourly wages of machine operators - Variable cost

4. Computer Chips purchased - Variable cost

5. Electricity costs - Variable cost

6. Metal - Variable cost

7. Salary of plant manager - Fixed cost

8. Property Taxes - Fixed cost

9. Plastic - Variable cost

10. Oil used in manufacturing equipment - Variable cost

11. Rent on Warehouse - Mixed cost

12. Property insurance - Mixed cost

13. Fixed cost

14. Pension cost - Variable cost

15. Packaging - Variable cost

Explanation:

The classification can be explained as follows. Costs that vary per activity level are examples of variable cost, even materials that are purchased to produce products. Example; the more a hourly employee works the higher his labor cost will be. The more products that are needed to be produced, the more material will be used. This the activity level of the cost driver influences the total cost.

Fixed costs are cost that remain the same despite a change in activity level. Thus the salary manager will be paid the same amount every month and the amount will not change. Other examples of fixed costs are contract costs agreed upon etc.

Mixed costs are cost that have both a variable and fixed component. The property insurance has a variable component ( each dollar value that exceeds 1200000 ) and a fixed component namely the monthly 3600 cost. Thus it is classified as a mixed cost.