Chapter 2, Problem 2.22E

Direct, indirect, fixed, and variable costs. California Tires manufactures two types of tires that it sells as wholesale products to various specialty retail auto supply stores. Each tire requires a three-step process. The first step is mixing. The mixing department combines some of the necessary direct materials to create the material mix that will become part of the tire. The second step includes the forming of each tire where the materials are layered to form the tire. This is an entirely automated process. The final step is finishing, which is an entirely manual process. The finishing department includes curing and quality control.

1. 1. Costs involved in the process are listed next. For each cost, indicate whether it is a direct variable, direct fixed, indirect variable, or indirect fixed cost, assuming “units of production of each kind of tire” is the cost object.

Costs:
Rubber	Mixing department manager
Reinforcement cables	Material handlers in each department
Other direct materials	Custodian in factory
Depreciation on formers	Night guard in factory
Depreciation on mixing machines	Machinist (running the mixing machine)
Rent on factory building	Machine maintenance personnel in each department
Fire insurance on factory building	Maintenance supplies for factory
Factory utilities	Cleaning supplies for factory
Finishing department hourly laborers	Machinist (running the forming machines)

1. 2. If the cost object were the “mixing department” rather than units of production of each kind of tire, which preceding costs would now be direct instead of indirect costs?