Question

Listed here are product costs for the production of soccer balls. Classify each cost (a) as either variable (V) or fixed (F) and (b) as either direct (D) or indirect (I). What patterns do you see regarding the relation between costs classified in these two ways?

Product cost	a. Variable or fixed	b. Direct or indirect
1. Leather cover for soccer balls
2. Annual flat fee paid for office security
3. Coolants for machinery
4. Wages of assembly workers
5. Lace to hold leather together
6. Taxes on factory
7. Machinery depreciation (Straight-line)

Short answer

Product cost	a. Variable or fixed	b. Direct or indirect
1. Leather cover for soccer balls	Variable	Direct
2. Annual flat fee paid for office security	Fixed	Indirect
3. Coolants for machinery	Fixed	Indirect
4. Wages of assembly workers	Variable	Direct
5. Lace to hold leather together	Variable	Indirect
6. Taxes on factory	Fixed	Indirect
7. Machinery depreciation (Straight-line)	Fixed	Indirect

Step-by-step solution

Definition of Cost Accounting

The accounting method that deals with calculating the total cost incurred by the business entity in the production process and classifying the cost incurred are known as cost accounting. There are various cost accounting methods available job order costing, process costing, and activity-based costing.

Classification of cost

1. Leather cover for soccer balls: It is considered a variable cost because its total cost will depend upon the number of balls manufactured. It is a direct cost because one can directly identify the leather cover with the product.

2. Annual flat fee paid for office security: The flat fee paid for office security will remain unchanged even if the production is 0. Therefore, it is considered a fixed cost. It is classified as an indirect cost because the activity for which it is paid is not directly attached to the production process.

3.Coolants for machinery: It is classified as an indirect fixed cost because the coolants for machines are not directly attached to the production;instead

, they will only assist the production process. Also, the cost of coolant will not change with a change in production. Therefore, it is considered a fixed cost.

4. Wages for assembly workers: Wages for assembly workers are classified as direct variable costs because they will be paid according to the number of hours they were employed and are directly engaged in the production process.

5. Lace to hold leather together: The cost of lace is considered an indirect variable cost because it will change according to the number of soccer balls manufactured. Also, it is an indirect cost because this cost is not directly associated with the manufacturing of the soccer balls.

6. Taxes on factory:Factory tax depends upon the area covered by the factory rather than the production level of the business entity; therefore, it will be considered a fixed cost. Also, this cost is not directly engaged to the production. Consequently, it is an indirect cost.

7. Machinery depreciation: This cost will be classified as an indirect fixed cost because depreciation on the machine is charged even when the business entity does not manufacture goods. Also, this cost is not directly associated with production.