Storm Inc

Direct and Indirect costs

Fixed and variable costs

Explanation with an Example

• Storm inc. operates a large book store in
Manchester, specialized in school and university
books. It is organized by study field and in particular
has a Management section selling marketing,
accounting and strategy books.

Classify each of the following costs items as :

1°) Direct or Indirect costs (D / I) with respect to the Management

section

2°) Variable of Fixed costs (V/F) with respect to the number of books

sold (if in doubt, select the cost type on the basis of whether the

cost will change substantially if a large number of books are sold).

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Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Electricity costs of Storm inc. (single bill covers entire store)

Variable or Fixed? Direct or indirect?

3
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Electricity costs of Storm inc. (single bill covers entire store)

FIXED INDIRECT

Important note: electricity often considered as variable costs, particularly in the industry sector; in a trading activity,

it may be considered as fixed (if the number of books sold increase, electricity will remain at the same level).

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Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Cost of books purchased for sale

Variable or fixed? Indirect or direct?

5
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Cost of books purchased for sale

VARIABLE DIRECT

6
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Subscription to Business Books for leaders magazine

Variable or fixed? Indirect or direct?

7
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Subscription to Business Books for leaders magazine

FIXED DIRECT

8
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Leasing of computer software used for accounting and financial

budgeting at Storm

Variable or fixed? Indirect or direct?

9
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Leasing of computer software used for accounting and financial budgeting

at Storm

FIXED INDIRECT

10
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Income of Storm global manager

Variable or fixed? Indirect or direct?

11
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Income of Storm global manager

FIXED INDIRECT

12
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Bonus on sales for the Management section director

Variable or fixed? Indirect or direct?

13
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Bonus on sales for the Management section director

VARIABLE DIRECT

14
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Cost of the bookmarks offered to the clients (one per client)

Variable or fixed? Indirect or direct?

15
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Cost of the bookmarks offered to the clients (one per client)

VARIABLE INDIRECT

16
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Cost of Storm advertising at the nearest metro station

Variable or fixed? Indirect or direct?

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Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Cost of Storm advertising at the nearest metro station

FIXED INDIRECT

18
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Fire insurance policy

Variable or fixed? Indirect or direct?

19
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Fire insurance policy

FIXED INDIRECT

20
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Cost of merchandising for the launch of Innovative Strategies

Variable or fixed? Indirect or direct?

21
Storm inc. operates a large book store in Manchester, specialized in school and university

books. It is organized by study field and in particular has a Management section selling

marketing, accounting and strategy books.

Cost of merchandising (special shelves) for the launch of Innovative

Strategies book

FIXED DIRECT

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