Costs that might be incurred by service, merchandising, and manufacturing compan
ID: 2480807 • Letter: C
Question
Costs that might be incurred by service, merchandising, and manufacturing companies are described below. Classify each cost as variable (V) or fixed (F) with respect to volume or level of activity:
1. Sales commissions paid to sales associates in a department store
2. Shipping cost for Amazon
3. Electricity cost to heat and light a law firm
4. Rent on a storeroom used by Turf Pros to store lawn equipment
5. Salary of a supervisor in a Best Buy distribution center
6. Wages paid to production workers in a General Motors plant
7. Insurance on a Hershey factory
8. Fuel costs for Southwest Airlines
9. Depreciation of office equipment by Microsoft Corporation
10. Dishwashing in an Olive Garden restaurant
11. Salary of the CEO of Microsoft
12. Lubricants used to maintain machinery in a textile factory
13. Cost of metal cans used in a dog food factory
14. Cost of pizza boxes for Domino's Pizza
15. Material handling costs for Frito Lay
Explanation / Answer
1.It is variable, since sale commission is based on the number of items sold. A portion of total volume of sale could be distributed as sales commission.
2. It is fixed, since shipping cost has no relevance with number of units. This is charged at lump-sum amount.
3. It is fixed, since the electricity cost has no relevance with number of units produced. Rather this is based on number of unit-meter.
4. Paying rent is not a variable cost but a fixed cost, since the rent amount is not changed based on number of units.