Question

Exercise 1-15 Classification of Costs as Variable or Fixed and as Product or Period [LO1-3, LO1-4]

Classify each cost as being either variable or fixed with respect to the number of units produced and sold. Also classify each cost as either a selling and administrative cost or a product cost.

  

	Cost Item	Cost Behavior	Period (Selling and Administrative) Cost/Product Cost
1.	Hamburger buns in a Wendy’s outlet.
2.	Advertising by a dental office.
3.	Apples processed and canned by Del Monte.
4.	Shipping canned apples from a Del Monte plant to customers.
5.	Insurance on a Bausch & Lomb factory producing contact lenses.
6.	Insurance on IBM’s corporate headquarters.
7.	Salary of a supervisor overseeing production of printers at Hewlett-Packard.
8.	Commissions paid to automobile salespersons.
9.	Depreciation of factory lunchroom facilities at a General Electric plant.
10.	Steering wheels installed in BMWs.

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Answer 1

1	Hamburger buns in a Wendy’s outlet.	Variable	Product cost
2	Advertising by a dental office.	Fixed	Selling and administrative cost
3	Apples processed and canned by Del Monte.	Variable	Product cost
4	Shipping canned apples from a Del Monte plant to customers.	Variable	Selling and administrative cost
5	Insurance on a Bausch & Lomb factory producing contact lenses.	Fixed	Product cost
6	Insurance on IBM’s corporate headquarters.	Fixed	Selling and administrative cost
7	Salary of a supervisor overseeing production of printers at Hewlett-Packard.	Fixed	Product cost
8	Commissions paid to automobile salespersons.	Variable	Selling and administrative cost
9	Depreciation of factory lunchroom facilities at a General Electric plant.	Fixed	Product cost
10	Steering wheels installed in BMWs.	Variable	Product cost