Classification of costs, merchandising sector. Home Entertainment Center

(HEC) operates a large store in San Francisco. The store has both a video section and a musical

(compact disks, records, and tapes) section. HEC reports revenues for the video section separately from the musical section.

Required Classify each of the following cost items as:

a. Direct or indirect (D or I) costs with respect to the video section

b. Variable or fixed (V or F) costs with respect to how the total costs of the video section change as the number of videos sold changes. (If in doubt, select on the basis of whether the total costs will change substantially if a large number of videos are sold.)

You will have two answers (D or I; V or F) for each of the following items:

Cost Item Dor I VorF A. Annual retainer paid to a video distributor B. store) Electricity costs of HEC store (single bill covers entire C. Costs of videos py "based for sale to customers D. Subscription to Vidi Trends magazine E. Leasing of computer oftware used for financial budgeting at HEC store F. Cost of popcorn provided free to all customers of HEC G. Earthquake insurance policy for HEC store H. Freight-in costs of v deos purchased by HEC for sale