Question

exercise 1-17 (static) classifying variable and fixed costs and product and period costs lo1-3, lo1-4
classify each cost as being either variable or fixed with respect to the number of units produced and sold. also classify each cost as either a period or a product cost.

cost item	cost classifications for:
1 hamburger buns in a wendy’s restaurant
2 advertising by a dental office
3 apples processed and canned by del monte
4 shipping canned apples from a del monte plant to customers
5 insurance on a bausch & lomb factory producing contact lenses
6 insurance on nucor’s corporate headquarters
7 salary of a supervisor overseeing production of printers at ricoh
8 commissions paid to automobile salespersons
9 depreciation of factory lunchroom facilities at a general electric plant
10 steering wheels installed in tesla electric vehicles

Answer:

To solve this, we analyze each cost item for cost behavior (variable/fixed) and financial statement classification (product/period):

1. Hamburger buns in a Wendy’s restaurant

• Cost Behavior: Variable (increases with number of hamburgers sold, as more buns are needed for more sales).
• Financial Statements: Product (direct material in food production, part of inventory cost).

2. Advertising by a dental office

• Cost Behavior: Fixed (spent regardless of number of patients, e.g., a monthly ad budget).
• Financial Statements: Period (selling expense, not tied to production of a “product” like dental services).

3. Apples processed and canned by Del Monte

• Cost Behavior: Variable (more apples needed for more cans produced).
• Financial Statements: Product (direct material in canning, part of inventory cost).

4. Shipping canned apples from a Del Monte plant to customers

• Cost Behavior: Variable (more shipments needed for more cans sold).
• Financial Statements: Period (selling expense, occurs after production, not part of inventory).

5. Insurance on a Bausch & Lomb factory producing contact lenses

• Cost Behavior: Fixed (factory insurance cost is constant over production levels).
• Financial Statements: Product (factory overhead, part of inventory cost for contact lenses).

6. Insurance on Nucor’s corporate headquarters

• Cost Behavior: Fixed (corporate insurance is not tied to production volume).
• Financial Statements: Period (administrative expense, not part of production costs).

7. Salary of a supervisor overseeing production of printers at Ricoh

• Cost Behavior: Fixed (supervisor salary is stable, not dependent on number of printers produced).
• Financial Statements: Product (factory overhead, part of inventory cost for printers).

8. Commissions paid to automobile salespersons

• Cost Behavior: Variable (commissions increase with number of cars sold).
• Financial Statements: Period (selling expense, tied to sales, not production).

9. Depreciation of factory lunchroom facilities at a General Electric plant

• Cost Behavior: Fixed (depreciation of factory assets is constant over time/production).
• Financial Statements: Product (factory overhead, part of inventory cost for GE products).

10. Steering wheels installed in Tesla electric vehicles

• Cost Behavior: Variable (more steering wheels needed for more vehicles produced).
• Financial Statements: Product (direct material in vehicle production, part of inventory cost).

Summary Table (for clarity):

Cost Item	Predicting Cost Behavior (Variable/Fixed)	Preparing Financial Statements (Product/Period)
2	Fixed	Period
3	Variable	Product
4	Variable	Period
5	Fixed	Product
6	Fixed	Period
7	Fixed	Product
8	Variable	Period
9	Fixed	Product
10	Variable	Product

This classification follows:

• Variable Cost: Changes with production/sales volume.
• Fixed Cost: Remains constant over production/sales volume.
• Product Cost: Tied to production (direct materials, direct labor, factory overhead), included in inventory.
• Period Cost: Tied to time (selling, administrative), expensed in the period incurred.