Costs can often be classified in several ways. For example, Lake Company pays $5,000 rent each month on its factory building. The rent would be part of manufacturing overhead. In terms of cost behaviour, it would be classified as a(n)cost. The rent can also be classified as a(n) 10. cost and as part of cost. EXERCISE 2-3 Classifying Variable, Fixed, Direct, and Indirect Costs [LO1 CC1; LO2 CC2] Various costs, as given below, are associated with running a commercial bakery that supplies baked goods to local coffee shops 1. Account manager's salary 2. Rent on building 3. Flour used in the making of croissants 4. Bakery manager's salary 5. Wages of bakers who are paid on a piecework basis. 6. Depreciation of commercial ovens used in baking. 7. Insurance on the building Required: Classify each cost as being either variable or fixed with respect to the quantity of baked goods supplied. Also, of baked goods supplied. Prepare your answer sheet as shown below: indicate whether each cost would typically be treated as a direct cost or an indirect cost with respect to the quantity Cost Behaviour To Quantity of Baked Goods Supplied Cost Item Variable Fixed Indirect Direc EXERCISE 2-2 Defining Cost Terms [LOiCCt, LO3 CC3; 104-CC7 Following are a number of cost terms introduced in the chapter Variable cost Fixed cost Prime cost Opportunity cost Product cost Sunk cost Conversion cost Period cost Required: Choose the term or terms that most appropriately describe the cost identified in each of the following situations. A term can be used more than once. 1. Lake Company produces a tote bag that is very popular with students. The cloth used in the manufacture of the bag would be called direct materials and classified as a(n)cost. In terms of cost behaviour, the cloth 2. The direct labour cost required to produce the tote bags, combined with the manufacturing overhead cost 3. The company could have taken the funds that it has invested in production equipment and invested them in 4. Taken together, the direct materials cost and the direct labour cost required to produce tote bags would be could also be described as a()cost. involved, would be known as a(n) interest-bearing securities instead. The interest forgone on the securities would be called a(n)cost. called a(n) Cost. cost. 5. The company used to produce a smaller tote bag that was not very popular. Some 300 of these smaller bags are stored in one of the company's warehouses. The amount invested in these bags would be called a(n) 6. The tote bags are sold through agents who are paid a commission on each bag sold. These commissions would be classified by Lake Company as a(n)cost. In terms of cost behaviour, commissions would boe classified as a(n) cost 7. Depreciation on the equipment used to produce tote bags would be classified by Lake Company as a(n) cost. However, depreciation on any equipment used by the company in selling and administrative activities would be classified as a(n)cost. In terms of cost behaviour, depreciation would probably be classified as a(n)cost 8. A(n)cost is also known as an inventoriable cost, since such costs go into the work-in-process inventory account and then into the finished goods inventory account before appearing on the income statement as part of cost of goods sold. 9. The salary of Lake Company's president would be classified as a()cost, since the salary will appear on the income statement as an expense in the time period in which it is incurred. Product Cost Perlod (Selling and Name of the Variable Fixed Direct Direct Cost Cost Cost Materials Labour Overhead Cest Cost Cost List the different cosis associaled with the new product decision down the exireme lefl column (uader "Name of the Cost"). Then place an X under each heading thal helps describe the type of cost involved. There may be Xs onder several column beadings for a single coal. (For example, a cost may be a fized cost, a period cost, aud a saek cost you would poi an X under each of these headings opposiie the cost.) EXERCISE 2-2 Defining Cost Terms [LO1-CCt LOS-CC3; LO4-CC7 Following are a number of cost lerms introduced in the chapter Variable cost Fixed cost Prime cost Opportunity cost Product cost Sunk cost Conversion cost Period cost Required: Choose the term or terms that most appropriately describe the cost identified in each of the following situations. A term can be used more than once . Lake Company produces a tote bag that is very popular with students. The cloth used in the manufacture of the bag would be called direct materials and classified as a(n) cost. In terms of cost behaviour, the cloth 2. The direct labour cost required to produce the tote bags, combined with the manufacturing overhead cost 3. The company could have taken the funds that it has invested in production equipment and invested them in 4. Taken together, the direct materials cost and the direct labour cost required to produce tote bags would be could also be described as a(n) cost involved, would be known as a(n) cst. interest-bearing securities instead. The interest forgone on the securities would be called a(n)cost called a(n) ost 5. The company used to produce a smaller tote bag that was not very popular.Some 300 of these smaller bags are stored in one of the company's warehouses. The amount invested in these bags would be called an) 6. The tote bags are sold through agents who are paid a commission on each bag sold. These commissions would be classified by Lake Company as a(n)cost. In terms of cost behaviour, commissions would be classified as a(n)cost 7. Depreciation on the equipment used to produce tote bags would be classified by Lake Company as a() COSt. However, depreciation on any equipment used by the company in selling and administrative activities would be classified as a(n)cost. In terms of cost behaviour, depreciation would probably be classified as a(n) _cost. 8. A(n)cost is also known as an inventoriable cost, since such costs go into the work-in-process inventory account and then into the finished goods inventory account before appearing on the income statement as part of cost of goods sold. 9. The salary of Lake Company's president would be classified as a(n) cost, since the salary will appear on the income statement as an expense in the time period in which it is incurred