Exercise 5-7 Cost Behavior

Baby Toys Co. produces fine porcelain dolls that are sold in exclusive gift shops. The controller and sales manager are discussing possible price increases and have started looking at various costs to consider their potential impact on price. The following are several of the costs they are discussing:

Required:

Assist the controller and sales manager by indicating whether each of the preceding costs is most likely a fixed cost (FC) or a variable cost (VC).

a. Advertising	Selectfixed costvariable costItem 1
b. Packaging (each doll is carefully packaged in a nicely designed collectible carton)	Selectfixed costvariable costItem 2
c. Supervisors' salaries	Selectfixed costvariable costItem 3
d. Fabric used in production (each doll is adorned in unique fabrics)	Selectfixed costvariable costItem 4
e. Assembly labor	Selectfixed costvariable costItem 5
f. Mortgage payment on the production facility	Selectfixed costvariable costItem 6
g. Production facility utilities	Selectfixed costvariable costItem 7
h. Quality assurance (each doll is carefully inspected)	Selectfixed costvariable costItem 8