Company Costs: Different Types of Costs

Discussion questions

9. How do variable costs and fixed costs differ? Given an example of each.

10. Analyze your personal expenses on a variable and fixed basis. What are some of your personal fixed costs and variable costs? What could cause them to change?

11. What is C-V-P analysis used for? In the process of using C-V-P what does it mean to "break even"?

17. What is the difference between direct cost an indirect cost? Give an example of each in the context of teaching an accounting class at your school

19. How can out-of-pocket costs and opportunity costs be applied to your personal financial decisions?

Practice Exercises

15-8
Fixed costs and variable costs

Which of the following is an example of a variable cost?

a. Insurance premium for fire insurance on the factory building
b. The salary of the company president
c. Wood used to make tables
d. Rent for use of a storage warehouse
e. Depreciation on the factory building

15-13
Direct and indirect costs

Which one of the following statements best explains why companies want to distinguish between direct and indirect costs?

a. To evaluate business segments on the basis of only those costs directly traceable to each segment.
b. To better determine whether a company is a large organization or a small organization.
c. Determine the sales prices necessary to break even
d. To better distinguish between variable and fixed costs for each product
e. To better distinguish between materials costs and labor costs
15-15
Out-of-pocket costs and opportunity cost

Which one of the following is an example of an opportunity cost?

a. Revenue lost from the sale of cakes by deciding to sell only cookies
b. Wages paid to construction workers
c. Material used to assemble computers
d. Ordering costs related to a customers special order guitar strings
e. Rent paid for the use of a factory building

Exercise

15-8
Cost classifications

The following are costs associated with manufacturing firms, merchandising firms, or service firms.

a. Miscellaneous materials used in production
b. Sales person's commission in a real estate firm
c. Administrators' salaries for a furniture wholesaler
d. Administrators' salaries for a furniture manufacturer
e. Freight cost associated with acquiring inventories for a grocery store
f. Office managers salary in a doctors office
g. Utilities for the corporate offices of a toy manufacturer
h. Line supervisors' salary for a clothing manufacturers firm
i. Training seminar for sales staff of a service firm
j. Fuel used in a trucking firm
k. Paper used at a printing business
l. Oil for machinery at a plastics manufacturing firm
m. Food used at a restaurant
n. Windshields used for a car manufacturer

Classify the costs as (1) product or period; (2) variable or fixed and (3) for those that are product costs, as direct materials, direct labor, or manufacturing overhead. Write "not applicable" (N/A) if a category doesn't apply.