Question 2: Cost classification Classify each cost as either variable or fixed with respect to the number of units produced and sold. Also indicate whether each cost would typically be treated as a direct cost or an indirect cost with respect to units of product. Cost item Cost Behaviour Variable Fixed To Units of Production Direct Indirect 1 Electricity to run production equipment Rent on a factory building 2 3 Cloth used to make drapes 4 Production superintendent's salary 5 Wages of laborers assembling a product Depreciation of air purification equipment used to make furniture Janitorial salaries 7 8 Peaches used in canning fruit 9 Lubricants for production equipment 10 Sugar used in soft drink production 11 Property taxes on the factory 12 Wages of workers painting a product 13 Depreciation on cafeteria equipment Question 1: Classifying Costs as Product or Period Costa Suppose that you have been given a summer job as an Intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. Cost Description Product Cost Period Cost 1 Depreciation on salespersons' cars 2 Rent on equipment used in the factory 3 Lubricants used for machine maintenance Salaries of personnel who work in the finished goods warehouse Soap and paper towels used by factory workers at the end of a shift 6 Factory supervisors' salaries 7 Heat, water, and power consumed in the factory Materials used for boxing products for shipment overseas (units are not normally boxed) 9 Advertising costs 10 Workers' compensation insurance for factory employees 11 Depreciation on chairs and tables in the factory lunchroom 12 The wages of the receptionist in the administrative offices Cost of leasing the corporate jet used by the company's executives The cost of renting rooms at a Florida resort for the annual sales conference 15 The cost of packaging the company's product