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Classification of Costs – BE 5-1 Answer

Classification of Costs – BE 5-1

From the given table, indirect labor can be classified as a variable cost. This is because it increases in proportion with an increase in activity level. Specifically, when production is 2000 units, indirect labor costs are $10,000 and when production increases to 4,000 units, indirect labor increases to $20,000.

Supervisory salaries are fixed costs because they do not change with changes in the activity level. For instance, supervisory salaries are $5,000 when production is both 2,000 and 4,000 units.

Maintenance costs are variable costs. These costs changes from $4,000 to $6,000 when the production increases from 2,000 units to 4,000 units.