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Published by Mary Brown

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Published by: Mary Brown on Feb 05, 2012
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[Note about problem complexity: Items F and H are coded as “Extend” because judgment is
needed for categorization.]

A.D or I, FAssuming that employee time can be traced to each bowl, wages are a direct
cost. However, if time is not traced to individual bowls (for example, if the
employee performs different types of tasks and records are not kept of the
types of work performed) or if the employee does not work directly in
production, then wages would be an indirect cost. Wages are fixed because
they remain constant (the employee always works 40 hours).

B.D, V

Assuming that the cost of clay can be traced to each bowl, it is a direct cost.
Total clay cost will vary with the number of bowls made.

C.I, F

Depreciation on the kilns is indirect because it cannot be directly traced to
individual bowls, that is, it is a common cost of production for all of the bowls
that are heat-treated in the kiln. The cost probably does not depend on
production volume (assuming depreciation is not based on units produced),
making it a fixed cost. Note: Depreciation using a method such as declining
balance is not constant over time, but would still be considered fixed because
it does not vary with production volume.

2-10Cost Management

D.D or I, VIf the glaze is expensive and therefore a relatively large cost, it is most likely
traced to individual bowls, making it a direct and variable cost. If the cost of
glaze is very small, it might not be traced to individual bowls, making it an
indirect cost. Also, if the cost is small it might be grouped with overhead
costs (variable).

E.I, V or FBrushes for the glaze are most likely used for multiple bowls, making them a
common cost for multiple units and an indirect cost. They might be fixed or
variable, depending on whether they are “used up” after a certain quantity of

F.I, F or MElectricity is an indirect cost because it cannot be traced to individual bowls.
It might be fixed or mixed, depending on what causes the cost to vary. If the
kiln is electric, part of the cost might vary proportionately with volume.

G.I, F

The business license is not related to production, making it an indirect cost. It
is mostly likely a flat fee or is calculated on a basis unrelated to production
volume, making it a fixed cost.

H.I, F

Advertising is not directly related to production, making it an indirect cost.
This cost is also discretionary, so it is treated as fixed.

I.I, F or MPottery studio maintenance is an indirect and fixed cost if it is the same
payment every week. If it is an hourly charge, it is probably a mixed cost,
because the production area may need more cleaning as volumes increase.

J.D or I, VAssuming that the cost of packing materials is traced to each bowl, this is a
direct cost. If the packing materials are not traced (for example, if the cost is
too small to justify tracing them), then this cost could be indirect. Packing
costs are most likely variable because they will increase as production

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