Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 47

Basic Concepts

For each of the following costs incurred in a manufacturing firm, indicate whether the costs are most likely fixed (F) or variable (V) and whether they are most likely period costs (P) or product costs (M) under full absorption costing.

a. Energy to run machines producing units of output in the factory.

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b. Depreciation on the building for administrative staff offices.

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c. Bonuses of top executives in the company.

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d. Overtime pay for assembly workers.

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e. Transportation-in costs on materials purchased.

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f. Assembly line workers’ wages.

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g. Sales commissions for sales personnel.

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h. Administrative support for sales supervisors.

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i. Controller’s office rental.

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j. Cafeteria costs for the factory.

Step 1 of 2

Period Cost: -

The term period costs are those expenses which can easily attribute to times and accounting period than actual production process or finished goods is computed for such period.

Product cost: -

Product costs are costs that are practiced to produce a product that is anticipated for sale to consumers. Product costs comprise of following that are direct material, direct labor, and manufacturing overhead.

Variable cost: -

Variable cost is the cost which increase or decrease with volume in the same proportion. In which the volume of output increase or decrease for Ex. Material consumed, direct labor cost of utility etc.

Fixed cost: -

Fixed cost is the cost which does not very the change in the volume of activity for ex. short run, salary, deprecation, pent advertisement expense.