One of the ways managers can classify costs is by behavior (variable or fixed). When...
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Accounting
One of the ways managers can classify costs is by behavior (variable or fixed). When you are trying to decide whether a cost is variable or fixed you need to think about two things the cost in total and the activity What you are trying to determine is if there is a causal link between the cost in total) and the activity Let's think about the following costs - factory utilities and factory rent and the following activity units produced. To decide if these costs are fived or variable you have to determine the following Does the cost IN TOTAL change when the activity changes? Factory utilities this cost would increase in total if production increased (more production means we will be running our machines more - so we will need more electricity. So this would be a variable cost Factory rent this cost would not change in total the more units we makes this cost is a fixed cost For each cost item isted below, indicate whether the cost is 1) Variable or fixed (with respect to units produced and sold) 2) Period or Product 3) If a product cost-indirect or direct A) Salesperson's commissions B) Factory supervisor's salary Wages of laborers assembling product D) Lubricants for machines E) Advertising costs
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