What are the classifications of the following costs based on Product or Period, and Variable, Fixed, or Mixed?
In the world of cost accounting, costs are classified based on their relationship to the production process and variability. The classifications include Product (direct/indirect) or Period costs and Variable, Fixed, or Mixed costs. Let's analyze each cost based on these classifications:
1. Raw Materials
- Classification: Product Cost (direct)
- Explanation: Raw materials are directly used in the production of a product, making them a direct cost. They are necessary for manufacturing and can be easily traced to the final product.
2. Tape used to secure packed boxes of product
- Classification: Product Cost (indirect)
- Explanation: The tape used to secure packed boxes is indirectly related to the product as it is not a direct material used in production. It is considered an indirect cost because it supports the packaging process and is necessary for delivering the final product to customers.
3. Plant janitor's wages
- Classification: Period Cost (fixed)
- Explanation: The plant janitor's wages are a period cost because they are not directly related to the production of a specific product. Instead, they are considered a fixed cost because they do not vary with changes in production levels. The janitor's wages are incurred regularly to maintain the overall cleanliness and functionality of the plant.
4. Inventory clerk wages
- Classification: Product Cost (indirect)
- Explanation: Inventory clerk wages are indirect costs as they are not directly involved in the production process. They are incurred to manage and keep track of inventory levels, which indirectly impacts the cost of producing and selling the product.
5. Promotional expenses
- Classification: Period Cost (variable)
- Explanation: Promotional expenses are period costs as they are incurred to promote and advertise the products or services of a company. These costs can vary based on the company's marketing strategies and campaigns, and they are not directly tied to the production or distribution of a specific product.
6. Production workers wages
- Classification: Product Cost (direct)
- Explanation: Production workers wages are considered direct costs because they are directly involved in the manufacturing process. These wages can be easily traced to the cost of producing a specific product.
7. Production supervisors salaries
- Classification: Product Cost (indirect)
- Explanation: Production supervisors salaries are indirect costs as they are not directly involved in the physical production process. However, they are still considered product costs because they are incurred to oversee and manage the production operations.
8. Sales force commissions
- Classification: Period Cost (variable)
- Explanation: Sales force commissions are period costs as they are incurred based on the level of sales achieved. They are variable costs because they vary with the sales volume. These commissions are paid to the sales force for their efforts in generating sales for the company.
9. Maintenance supplies used
- Classification: Product Cost (indirect)
- Explanation: Maintenance supplies used are indirect costs as they support the production process but are not directly incorporated into the final product. These costs contribute to the overall cost of producing the product.
10. Controller's salary
- Classification: Period Cost (fixed)
- Explanation: The controller's salary is a period cost because it is not directly related to the production process. It is a fixed cost as it remains constant regardless of the level of production. The controller is responsible for financial management and control, ensuring accurate recording and reporting of the company's financial information.
11. Electricity cost for office building
- Classification: Period Cost (mixed)
- Explanation: The electricity cost for the office building is a mixed cost. It includes both fixed and variable components. The fixed component represents the base electricity usage necessary to maintain the office building, while the variable component varies based on the level of office activities.
12. Real estate taxes for factory
- Classification: Period Cost (fixed)
- Explanation: Real estate taxes for the factory are a period cost as they are not directly related to the production process. These taxes are a fixed cost as they do not change with the level of production. They are incurred regularly based on the assessed value of the factory property.
13. Real estate taxes for office building
- Classification: Period Cost (fixed)
- Explanation: Real estate taxes for the office building are also a period cost, similar to the taxes for the factory. They are not directly tied to the production process and remain fixed regardless of the level of production. These taxes are incurred regularly based on the assessed value of the office building.