Question

Question: Listed below are product costs for production of footballs. Classify each cost as either variable (V) or fixed (F).

1. Leather covers for footballs
2. Machinery depreciation (straight-line)
3. Wages of assembly workers
4. Lace to hold footballs together
5. Insurance premium on building
6. Factory supervisor salary

Short answer

Answer

S.no.	Description	Cost
1	Leather covers for footballs	Variable Cost
2	Machinery depreciation (straight-line)	Fixed Cost
3	Wages of assembly workers	Variable Cost
4	Lace to hold footballs together	Variable Cost
5	Insurance premium on building	Fixed Cost
6	Factory supervisor salary	Fixed Cost

Step-by-step solution

Meaning of Financial Accounting

The process of gathering financial data and creating financial statements is called financial accounting. It is the primary objective of a profit and loss statement to reveal an organization's profitability and losses.

Classifying each cost as variable or fixed

S.no.	Description	Cost	Direct/Indirect	Explanation
1	Leather covers for footballs	Variable Cost	Direct	Football leather is the raw material for making footballs. Any raw material used to make a product is considered a variable cost.
2	Machinery depreciation (straight-line)	Fixed Cost	Indirect	Since depreciation occurs in the same amount each period (straight line method) throughout the asset’s useful life, it is a fixed cost. It cannot be categorized as a variable expense because it is unaffected by the activity level.
3	Wages of assembly workers	Variable cost	Direct	Assemblers' wages are classified as direct variable costs since they are paid according to their hours worked and are directly involved in production.
4	Lace to hold footballs together	Variable Cost	Indirect	Since the cost of lace varies depending on how many pairs of footballare produced, it is seen as an indirect variable cost. Additionally, since this expense is not directly trace to football production, it is indirect.
5	Insurance premium on building	Fixed Cost	Indirect	The company has to pay the fixed insurance premium irrespective of the number of units produced; that is why it is fixed and indirectly related to production.
6	Factory supervisor salary	Fixed Cost	Direct	The factory supervisor's remuneration is a fixed expense. Although it is a direct cost, it must be a fixed cost that the company cannot ignore. Whether productivity or sales are excellent or poor for the month, supervisors often receive a predetermined monthly compensation.