Acc/531 Week 4

Text Discussion Questions and Exercises:

• Chapter 15: Discussion Question 9.
How do variable costs and fixed costs differ? Give an example of each.
Fixed costs are costs that will be the same for the next year. In my Construction Business fixed costs are office rent, office utilities, advertising costs, etc. In a year, these costs can be known ahead of time and won't need to change even if my company does more work. Variable costs are costs that can rise or fall depending on how much work I contract. Say I sign up 20 jobs this year, I will have to hire more employees, buy them trucks, rent them cell phones, and those costs will correspond to the amount of work going on, therefore variable.

• Chapter 15: Discussion Question 16.
What
is the difference between a direct cost and an indirect cost? Give an example of each in the context of teaching an accounting class at your school.
Direct costs are costs that are specifically traceable to a unit of business or segment being analyzed. Example: ???
Indirect costs are costs normally incurred for the benefit of several segments within the organization; sometimes called common costs or joint costs. Example:???

• Chapter 15: Discussion Question 18.
How can out-of-pocket costs and opportunity costs be applied to your personal financial 1 decisions?
Out-of-pocket costs are just that; things you pay for in cash or credit and Opportunty costs are choices. You pick one over the other, and your opportunity cost is whatever you chose not to do. • Practice Exercise 15-8
Fixed Costs and Variable Costs
Which of the following is an example of a variable cost?
a. Insurance premium for fire insurance on the factory building
b. The salary of the company president
c. Wood used to make custom tables
d. Rent for use of a storage warehouse
e. Depreciation on the factory building

• Practice Exercise 15-12 Direct and Indirect Costs
Which one of the following statements best explains why companies want to distinguish between direct and indirect costs?
a. To evaluate business segments on the basis of only those costs directly traceable to each segment
b. To better determine whether a company is a large organization or a small organization
c. To determine the sales prices necessary to break even
d. To better distinguish between variable and fixed costs for each product
e. To better distinguish between materials costs and labor costs

• Practice Exercise 15-14
Out-of-Pocket Costs and Opportunity Costs
Which one of the following is an example of an opportunity cost?
a. Revenue lost from sale of cakes by deciding to sell only cookies
b. Wages paid to construction workers
c. Materials used to assemble computers
d. Ordering costs related to a customer’s special order of guitar strings
e. Rent paid for the use of a factory building

• Exercise 15-23
Cost Classifications
The following are costs associated with manufacturing firms, merchandising firms, or service firms:
A. Miscellaneous materials used in production (3)
B. Salesperson’s commission in real estate firm (2)
C. Administrators’ salaries for a furniture wholesaler (2)
D. Administrators’ salaries for a furniture manufacturer (2)
E. Freight costs associated with acquiring inventories for a grocery store (2)
F. Office managers salary in a doctors office (1)
G. Utilities for the corporate offices of a toy manufacturer (2)
H. Line supervisors salary for a clothing manufacturing firm (2)
I. Training seminar for sales staff of a service firm (N/A)
J. Fuel used in a trucking firm (1)
K. Paper used at a printing business (1)
L. Oil for machinery at a plastics manufacturing firm (1)
M. Food used at a restaurant (1)
N. Windshields used for a car manufacturer
(3)

Classify the costs as (1) product or period; (2) variable or fixed; and (3) for those that are product costs, as direct materials, direct labor, or manufacturing overhead. Write “not applicable (N/A)” if a category doesn’t apply.