Fixed Cost: Fixed cost refers the cost which remains constant for particular time duration and there is no effect over it of the level of production. Variable Cost: Variable cost refers the cost which varies due to the change in the level of production. Higher production level refers higher the variable cost, and lower production level refers lower the variable cost. Direct Cost: Direct cost is the cost assigned to the cost object which is directly related to that cost object that is product or department. For example, material cost and labor cost. Indirect Cost: Indirect cost which is not directly related or assigned to the cost object that is product or department. For example, selling cost and administration cost. To classify: The costs items as direct fixed costs, direct variable cost, indirect fixed costs and indirect variable cost.

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Chapter 2, Problem 2.17E

1.

To determine

Fixed Cost:

Fixed cost refers the cost which remains constant for particular time duration and there is no effect over it of the level of production.

Variable Cost:

Variable cost refers the cost which varies due to the change in the level of production. Higher production level refers higher the variable cost, and lower production level refers lower the variable cost.

Direct Cost:

Direct cost is the cost assigned to the cost object which is directly related to that cost object that is product or department. For example, material cost and labor cost.

Indirect Cost:

Indirect cost which is not directly related or assigned to the cost object that is product or department. For example, selling cost and administration cost.

To classify: The costs items as direct fixed costs, direct variable cost, indirect fixed costs and indirect variable cost.

2.

To determine

To identify: The costs items as direct costs instead of indirect costs when cost object were “mixing department”.

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