Cost Classification Flashcards

What type of cost are shoelaces for a shoe manufacturer?

What type of cost is depreciation on administration furniture calculated using the double-declining balance method?

What type of cost is depreciation on administration furniture using the straight-line method?

What type of cost is depreciation on factory equipment calculated using the double-declining balance method?

What type of cost is depreciation on factory equipment calculated using the straight-line method?

What type of cost is steak for a restaurant?

What type of cost is the assembly line workers' salary?

What type of cost are utilities for a factory in August?

What type of cost is the salary of a security person working at the factory?

What type of cost is the salary of a security person working in the sales building?

What type of cost is fuel for an airline?

What type of cost is sales force compensation that includes a base salary and commission based on sales?

What type of cost is income tax expense?

What type of cost is property tax expense?

What type of cost are wood costs for a furniture manufacturer?

Cost Classifications

Variable Costs: Costs that change with production volume (e.g., shoelaces for shoe manufacturers, steak for restaurants, fuel for airlines, wood for furniture manufacturers).
Fixed Costs: Costs that remain constant regardless of production volume (e.g., depreciation on administration furniture, assembly line workers' salary, property tax expense).
Indirect Product Costs: Costs not directly traceable to a specific product (e.g., depreciation on factory equipment, security personnel salary at the factory).
Direct Product Costs: Costs that can be directly attributed to a specific product (e.g., shoelaces, steak, fuel).

Depreciation Methods

Double-Declining Balance Method: Accelerated depreciation method for fixed assets (e.g., administration furniture and factory equipment).
Straight-Line Method: Equal depreciation expense allocated over the asset's useful life (e.g., administration furniture and factory equipment).

Mixed Costs

Mixed Costs: Costs that have both fixed and variable components (e.g., utilities for factories, sales force compensation with base salary and commission).

Period Costs

Period Costs: Costs not tied to production; expensed in the period incurred (e.g., security personnel salary in sales, income tax expense, property tax expense).

Key Salary Classifications

Direct Product Cost Salaries: Assembly line workers' salaries are considered part of direct product costs.
Indirect Product Cost Salaries: Salaries of security personnel are categorized as indirect product costs when located at the factory.
Period Cost Salaries: Salaries of security personnel working in the sales building fall under period costs.

Special Notes

Income tax expense is classified as a period cost, not as fixed, variable, or mixed.
Mixed costs can complicate budgeting and forecasting due to their dual nature.

Test your understanding of cost classification with these flashcards. Each card focuses on different types of costs, such as variable costs, fixed costs, and depreciation methods used in manufacturing and administration. Challenge yourself to differentiate between direct product costs and period costs.