Cost Types in Manufacturing

A company manufactures wooden furniture. The cost of wood used in the production of one table is $30. What type of cost is this?

• Direct Cost

• Indirect Cost

• Fixed Cost

• Variable Cost

Answer explanation

The cost of wood used in producing one table is a Direct Cost because it can be directly traced to the production of that specific table. It is not an Indirect Cost, Fixed Cost, or Variable Cost.

A factory spends $4,000 per month on facility rent, regardless of how many products are made. What type of cost is this?

• Direct Cost

• Indirect Cost

• Fixed Cost

• Variable Cost

Answer explanation

The factory's rent of $4,000 is a fixed cost because it remains constant each month, regardless of production levels. Unlike variable costs, fixed costs do not change with the volume of goods produced.

A company pays $3,000 per month for utilities, and the cost increases with higher production levels. What type of cost is this?

• Direct Cost

• Indirect Cost

• Fixed Cost

• Variable Cost

Answer explanation

The cost of utilities increases with higher production levels, making it a variable cost. Unlike fixed costs, which remain constant, variable costs fluctuate based on the level of output.

The salary of a supervisor in the manufacturing department is $5,000 per month. This cost is an example of:

• Direct Cost

• Indirect Cost

• Fixed Cost

• Variable Cost

Answer explanation

The supervisor's salary is considered an indirect cost because it is not directly tied to the production of goods, but rather supports the overall operations of the manufacturing department.

The factory spends $15 per unit on labor costs for assembling the products. What type of cost is this?

• Direct Cost

• Indirect Cost

• Fixed Cost

• Variable Cost

Answer explanation

The labor cost of $15 per unit is a Direct Cost because it can be directly traced to the production of each unit. It is also a Variable Cost since it varies with the number of units produced.

A company spends $6,000 annually on insurance for its equipment, regardless of how many products are produced. What type of cost is this?

• Direct Cost

• Indirect Cost

• Fixed Cost

• Variable Cost

Answer explanation

The insurance cost is a fixed cost because it remains constant at $6,000 annually, regardless of production levels. It is also an indirect cost as it is not directly tied to the production of specific products.

Calculate the total cost for producing 600 units of a product, given the following costs: Direct material cost: $25 per unit Direct labor cost: $15 per unit Fixed overhead: $4,000 Variable overhead: $5 per unit

Answer explanation

Total cost = (600 units * $25) + (600 units * $15) + $4,000 + (600 units * $5) = $15,000 + $9,000 + $4,000 + $3,000 = $31,000.

A factory spends $2 per unit for packaging materials, and it costs $6,000 to lease the packaging equipment each month. What type of cost is the $2 per unit spent on packaging materials?

• Direct Cost

• Indirect Cost

• Fixed Cost

• Variable Cost

Answer explanation

The $2 per unit for packaging materials is a Direct Cost because it can be directly traced to the production of each unit. It is also a Variable Cost since it varies with the number of units produced.

The cost of security services at the factory is $500 per month, regardless of production levels. What type of cost is this?

• Direct Cost

• Indirect Cost

• Fixed Cost

• Variable Cost

Answer explanation

The security service cost is $500 per month, which does not change with production levels, making it a fixed cost. Additionally, it is an indirect cost as it is not directly tied to production but supports overall operations.

A company produces 800 units of a product. The total fixed cost is $10,000, and the variable cost per unit is $12. What is the total cost?

Answer explanation

Total cost is calculated as total fixed cost plus total variable cost. Total variable cost = 800 units * $12/unit = $9,600. Therefore, total cost = $10,000 + $9,600 = $19,600.