E4-1 Classifying fixed and variable costs Classify each of the following items of factory overhead as either a fixed or a variable cost. (Include any costs that you consider to be semivariable within the variable category. Remember that variable costs change in total as the volume of production changes.)

a. Indirect labor b. Indirect materials c. Insurance on building d. Overtime premium pay e. Depreciation of building (straight-line method) f. Polishing compounds g. Depreciation of machinery (units-of-production method) h. Employers payroll taxes i. Property taxes j. Machine lubricants k. Employees hospital insurance (paid by employer) l. Labor for machine repairs m. Vacation pay n. Janitors wages o. Rent p. Small tools q. Plant managers salary r. Factory electricity s. Product inspectors wages

E4-6 Computing unit costs at different levels of production French Fragrances, Ltd. budgeted for 12,000 bottles of perfume Belle during May. The unit cost of Belle was $20, consisting of direct materials, $7; direct labor, $8; and factory overhead, $5 (fixed, $2; variable, $3).

a. What would be the unit cost if 10,000 bottles were manufac- tured? (Hint: You must first determine the total fixed costs.) b. What would be the unit cost if 20,000 bottles were manufactured? c. Explain why a difference occurs in the unit costs.