Classify each of the following as direct or indirect with respect to traceability to product and as variable or fixed with respect to whether the costs fluctuate in total as volume of production changes over wide ranges. Explain your classifications. 1. The cost of components that are assembled into a final product. 2. The cost of supplies consumed when maintenance is performed on machines. 3. The wages of machine operators who work on only one product. 4. The cost of training mechanics who service processing machinery.

Question

Business

Trevon Garrison

16 December, 11:37

Classify each of the following as direct or indirect with respect to traceability to product and as variable or fixed with respect to whether the costs fluctuate in total as volume of production changes over wide ranges. Explain your classifications. 1. The cost of components that are assembled into a final product. 2. The cost of supplies consumed when maintenance is performed on machines. 3. The wages of machine operators who work on only one product. 4. The cost of training mechanics who service processing machinery.

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Answers (1)

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Gilberto Olson · Answer 1

The answers are as follows;

1. Direct; variable

2. Indirect; variable

3. Direct; variable

4. Indirect; variable

Explanation:

Just as stated in the question,

Direct costs are directly associated/traceable to product

Indirect costs do not have direct association to product, but enhance production

Variable costs are costs that change as volume of production change

fixed costs are costs that do not change with changing volume of product.

Not let me explain the choices one after the other

1. The cost of components that are assembled into a final product; because the components are assembled to form the product, they are directly linked to product, hence the cost is direct, and the total number of components will determine the total volume of product, so if a higher number of product is to be produced, then the total number of components to be purchased will increase, which will in turn increase the total cost of purchasing the components, hence the cost is variable, not fixed.

2. The cost of supplies consumed when maintenance is performed on machines; maintenance of machines do not have direct effect on product, but on the machines used in production, hence the cost here is indirect, the need for maintenance will arise more, depending on the frequency at which the machine is used, so the more frequently the machine is used the higher the product volume and the more the need for maintenance, therefore making cost of maintenance variable. This type of variable cost is known as variable overhead cost, because the price per unit of product is the same, but the total price increases as total product volume increase

3. The wages of machine operators who work on only one product; machine operators are directly involved in production, they operate the production tool, hence their wages is a direct, cost, and since the wage is paid on manufacture of only one product, it means that as the product volume increase, from one to two, the operator will be paid twice, hence is a variable cost. This cost would have been fixed if the operators were not paid per product, but paid monthly, so depending on the volume of product, they have a certain monthly salary.

4. The cost of training mechanics who service processing machinery; mechanics who service machinery, have direct effect on machinery not product, hence the cost of training these mechanics is indirect cost, Increase in the volume of product produced, may call for the acquisition of more machines and the need to employ more mechanics, which implies more cost of training, hence it is a variable cost.