Chapter 18, Problem 2E

To determine

Concept Introduction-Variable costs −

Variable costs are those costs which are directly proportionate with the volume of production. It varies with the level of production. If volume of production increases, variable costs will also increase and vice-versa.

Fixed costs-

Fixed costs are those costs which are fixed over a specific range of production. It remains fixed. It doesn't get changed with the volume of production.

Direct Costs-

Direct costs are those costs which are directly related to the production. It includes, direct material, direct labor, etc.

Indirect costs-

Indirect costs are those costs which are not directly related to the production. It includes, indirect material, indirect labor, etc. It includes variable and fixed costs which are not directly related to the production.

To Classify-To classify each product costs as either variable or fixed and direct costs or indirect costs.