Page of 3 ZOOM Q7: Variable vs. fixed cost Variable: it varies depending on how many units are produced. Fixed: does not vary no matter how many are produced. a. If you are a food truck owner and prepare a chicken salad, how would you classify the following costs? (variable or fixed) a.chicken d. electricity bills b. cook's pay e. license c. lettuce f. parking permit & depreciation of truck b. Example: movie pass vs. single movie tickets. Behavior of Cost (within the relevant range) Cost In Total Per Unit Variable Total variable cost Increase Variable cost per unit and decrease in proportion remains constant. to changes in the activity level. Fixed Total fixed cost is not affected Fixed cost per unit decreases by changes in the activity as the activity level rises and level within the relevant range. increases as the activity level falls. In total Per unit Movie pass Pay per go 5. Product cost and period cost In the first four chapters: Product cost-me, cost Period cost non-mfg, cost Note 1: A big picture (For financial reporting purpose) - Chapter 3 [For managerial accounting purpose) Product Cost Mfg. Cost When produced: Debit Inventory 1 Direct Material: When sold: 2 Direct Labor Prime Cost Conversion Cost Debit: Cost of Goods Sold 3 (Indirect) Mfg. Overhead Credit: Inventory (Also called "common cast") (1) Fixed (2) Variable or, (1) Indirect Labor not touch labor (2) Indirect Materials: trivial items (3) Other: utility, insurance, tax, etc. Period Cost Non-Mfg. Cost Directly goes to Expense 1 Selling 2 Administrative Q8 Which of the following costs would be considered a period rather than a product cost in a manufacturing company? Manufacturing equipment depreciation Property taxes on corporate headquarters Direct materials costs. Electrical costs to light the production facility. Sales commissions. Purposes of Cost Classification Page of 3 ZOOM Q7: Variable vs. fixed cost Variable: it varies depending on how many units are produced. Fixed: does not vary no matter how many are produced. a. If you are a food truck owner and prepare a chicken salad, how would you classify the following costs? (variable or fixed) a.chicken d. electricity bills b. cook's pay e. license c. lettuce f. parking permit & depreciation of truck b. Example: movie pass vs. single movie tickets. Behavior of Cost (within the relevant range) Cost In Total Per Unit Variable Total variable cost Increase Variable cost per unit and decrease in proportion remains constant. to changes in the activity level. Fixed Total fixed cost is not affected Fixed cost per unit decreases by changes in the activity as the activity level rises and level within the relevant range. increases as the activity level falls. In total Per unit Movie pass Pay per go 5. Product cost and period cost In the first four chapters: Product cost-me, cost Period cost non-mfg, cost Note 1: A big picture (For financial reporting purpose) - Chapter 3 [For managerial accounting purpose) Product Cost Mfg. Cost When produced: Debit Inventory 1 Direct Material: When sold: 2 Direct Labor Prime Cost Conversion Cost Debit: Cost of Goods Sold 3 (Indirect) Mfg. Overhead Credit: Inventory (Also called "common cast") (1) Fixed (2) Variable or, (1) Indirect Labor not touch labor (2) Indirect Materials: trivial items (3) Other: utility, insurance, tax, etc. Period Cost Non-Mfg. Cost Directly goes to Expense 1 Selling 2 Administrative Q8 Which of the following costs would be considered a period rather than a product cost in a manufacturing company? Manufacturing equipment depreciation Property taxes on corporate headquarters Direct materials costs. Electrical costs to light the production facility. Sales commissions. Purposes of Cost Classification