Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 51

Classification of Costs

Papa’s Pizza Heaven serves take-out pizza from three locations in Columbus, Maryland. Papa’s considers each pizza delivered (even if the order is for two or more pizzas) as the cost object for the company. The company incurs the following costs:

1. Food costs including pizza dough, olive oil, tomato sauce, mozzarella cheese, mushrooms, bell peppers, Italian sausage, chopped fresh basil, pesto, pepperoni, onions, and ham.

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2. Salaries for drivers.

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3. Salaries for telephone operators.

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4. Salaries for cooks.

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5. Insurance for drivers.

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6. Utilities.

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7. Advertising.

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8. Discount coupons offered in local newspapers to attract customers.

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9. Food handling licenses, inspections, and fees.

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10. Accounting and payroll services.

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11. Cooking supplies.

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12. Cleaning supplies.

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13. Mortgage payments on the three locations owned by Papa’s Pizza Heaven.

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14. Insurance on facilities.

Required

1. For each cost item, indicate whether it is fixed or variable relative to the cost object.

2. For each cost item, indicate whether it is a product or a period cost.

Step 1 of 3

Fixed costs are those costs which does not changes with change in level of production. Variable costs are those costs which changes with change in level of production. Product costs are those cost used in complete the production. Period costs are those cost which are not used in production of good.