Fixed Costs and Variable Costs:
Problem 1: Which of the following is an example of a variable cost?
a. Insurance premium for fire insurance on the factory building
b. The salary of the company president
c. Wood used to make custom tables
d. Rent for use of a storage warehouse
e. Depreciation on the factory building
Direct and Indirect Costs:
Problem 2: Which one of the following statements best explains why companies want to distinguish between direct and indirect costs?
a. To evaluate business segments on the basis of only those costs directly traceable to each segment
b. To better determine whether a company is a large organization or a small organization
c. To determine the sales prices necessary to break even
d. To better distinguish between variable and fixed costs for each product
e. To better distinguish between materials costs and labor costs
Out-of-Pocket Costs and Opportunity Costs:
Problem 3: Which one of the following is an example of an opportunity cost?
a. Revenue lost from sale of cakes by deciding to sell only cookies
b. Wages paid to construction workers
c. Materials used to assemble computers
d. Ordering costs related to a customer's special order of guitar strings
e. Rent paid for the use of a factory building