Question

JPAK Company manufactures and sells mountain bikes. It normally operates eight hours a day, five days a week. Using this information, classify each of the following costs as fixed or variable with respect to the number of bikes made.

Bike frames	d. Taxes on property	g. Office supplies
Screws for assembly	e. Bike tires	h. Depreciation on tools
Direct labor	f. Gas used for heating	i. Management salaries

Short answer

a.Bike frames	Variable cost
b.Screws for assembly	Variable cost
c.Direct labor	Variable cost
d.Taxes on property	Fixed cost
e.Bike tires	Variable cost
f.Gas used for heating	Variable cost
g.Office supplies	Fixed cost
h.Depreciation on tools	Variable cost
i.Management salaries	Fixed cost

Step-by-step solution

Meaning of Costing System 

A costing system refers to an approach designed by the business entities to capturevarieties of costs incurred to produce a product or service. This system comprises various forms, processes, and reports.

Classification of bike frames

The bike frames should be classified under the variable cost because the number of frames will vary according to thelevel of output. Hence, bike frames are avariable cost for the company.

Classification of screws for assembly

The screws for assembly should be classified under thevariable cost because the usage of screws isdirectly related to the number of bikes the company will make.Hence, screws for assembly are a variable expense for the business.

Classification of direct labor

Direct labor should be classified under the variable cost becauseit is directly associated with the level of production.The cost paid to the labor will vary with the number of bikes made by the company; hence it is a variable cost.

Classification of taxes on property

The taxes on the property should be classified under the fixed costbecause such costs remain unaffected by the variations in the level of output. Taxes are paid to the government authorities, and the amount is fixed according to the size of the property.

Classification of bike tires

The bike tires should be classified under the variable cost because the tires will be used corresponding to the number of bikes manufactured by the company. Hence, it is avariable cost because of itsdirect relation toproduction.

 Step 7: Classification of gas used for heating 

The gas used for heating should be classified under the variable cost because the heating process will vary according to theproduction output. Hence, the cost incurred on heating gas is considered avariable cost.

 Step 8: Classification of office supplies

Theoffice supplies should be classified under the fixed cost because it does not relate to theproduction process. The cost associated with the office supplies will not be affected by the production level. Hence, it is afixed cost for a business.

Classification of depreciation on tools

The depreciation of tools should be classified under the variable cost because the company may require more tools to produce more bikes. Therefore, the tools are directly associated with themanufacturing process;hence it is a variable cost.

Classification of management salaries

The management salaries should be classified under the fixed cost because such salaries are not associated with the manufacturing activities of the bikes and will not change with the production level. Hence, it is a fixed cost for the company.