Complete the answer sheet by placing an 'X' under each heading that identifies the cost involved. The costs include rental revenue, materials costs, production supervisor salary, p... Complete the answer sheet by placing an 'X' under each heading that identifies the cost involved. The costs include rental revenue, materials costs, production supervisor salary, production line workers’ wages, equipment rental, building depreciation, marketing costs, shipping costs, and return on present investments.
Understand the Problem
The question is asking to categorize various costs associated with the operations of the Plastic Company into different cost types, such as variable cost, fixed cost, and others. This involves analyzing each cost and determining its classification.
Answer
Variable Costs: Raw materials, production labor; Fixed Costs: Rent, salaries, equipment depreciation; Semi-Variable Costs: Utility bills.
Answer for screen readers
Costs can be categorized as follows:
- Variable Costs: Raw materials, production labor
- Fixed Costs: Rent, salaries, equipment depreciation
- Semi-Variable Costs: Utility bills
Steps to Solve
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Gather Information on Each Cost Collect all relevant costs associated with the operations of the Plastic Company. Examples of these costs can include materials, labor, rent, utilities, and equipment depreciation.
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Define Cost Categories Understand the definitions of each cost type:
- Variable Costs: Costs that change in relation to production volume, such as raw materials and packaging.
- Fixed Costs: Costs that remain constant regardless of production levels, like rent and salaries.
- Semi-Variable Costs: Costs that contain both fixed and variable components, for instance, a utility bill that has a base fee plus a variable charge for usage.
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Classify Each Cost Analyze each cost from step 1 and categorize it based on the definitions provided.
- For example, if the cost is for materials, classify it as a variable cost.
- Rent should be classified as a fixed cost.
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Create a Summary Table Make a table summarizing each cost with their classifications. This helps visualize the categories and ensures that all costs have been considered.
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Review and Verify Classifications Double-check each classification for accuracy, ensuring that the definitions align with your categorizations. Confirm that no costs have been left out.
Costs can be categorized as follows:
- Variable Costs: Raw materials, production labor
- Fixed Costs: Rent, salaries, equipment depreciation
- Semi-Variable Costs: Utility bills
More Information
Correct classification of costs is crucial for budgeting and financial analysis, as it impacts pricing, profit calculations, and overall business strategy. Understanding these types helps companies manage their finances effectively.
Tips
- Misclassifying variable costs as fixed costs. To avoid this, clearly analyze whether the cost changes with production levels.
- Overlooking semi-variable costs. Ensure to check if any cost includes both fixed and variable components.
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