Question

What types of costs are associated with a Stance™ sock vending machine located in an airport?

At Cleveland Hopkins International Airport in northeastern Ohio, a vending machine that dispenses socks was recently installed. Located in the C concourse, the Stance sock vending machine offers a variety of what Stance refers to as “uncommon” socks. The designs on the socks in the Cleveland airport vending machine include Cleveland Browns, Cleveland Indians, patriotic flag designs, Hawaiian tropical flowers, and others.

The machine is stocked with an assortment of socks. The airport traveler inserts a credit card, makes a sock selection in the keypad, and the socks are dispensed to the purchaser.

Stance sells its socks through retailers, at its own stores, via vending machines, and through monthly subscriptions.

Questions

1. Are Stance’s costs mostly variable or fixed? What impact does this cost structure have on the break even volume for Stance’s operation of that vending machine?
2. Now classify each of the costs you listed for Question 1 as direct or indirect, assuming that the vending machine is the cost object.
3. How would the classification of costs as direct or indirect change when the cost object shifts from the Cleveland airport sock vending machine to the overall sock product line at Stance?

Answer 1

Types of costs associated Stance sock vending machine include:

1.Initial investment cost of the vending machine

2.Depreciation

3.Taxes

4.Rental space

5.Storage

6.Insurance

7.Electricity

8. Repairs and maintenance

9. Selling and distribution expenses

Classification of these costs on the basis of variability:

FIXED COST

a)Initial investment

b)Depreciation

c)Taxes

d)Insurance

VARIABLE EXPENSES

a).Rent

b).Repairs and maintence

c)Electricity

d)Storage

e)Monthly subscriptions

f) Selling and distribution expenses

Stance''s costs are mostly variable. As the variable cost increases, there is increase in the volume of output of Stance Vending Machine.