Classification of Expenses - Warm up Excercise
Classification of Expenses - Warm up Excercise
This article is part of a tutorial.
Tutorial Index page - Classification of Marginal Costing Expenses
Classification of Expenses
Q: The office rent is likely to be classified into which cost behavior?
- Fixed
- Mixed
- Variable
Which one is right?
Answer:
The answer is Fixed.
Reason:
The office rent is not likely to change within a reasonable range of sales or other activity.
Q: Commissions Expense is likely to be classified into which cost behavior?
- Fixed
- Mixed
- Variable
Which one is right?
Answer:
The answer is Variable.
Reason:
Sales commission is a variable expense because the total amount of sales commission will increase in proportion to the increase in sales and it will decrease in total as sales decrease.
Q: “A sole proprietor's compensation will be included in Salaries Expense.”
Whether this statement is True or False
Answer:
This statement is false.
Reason:
A sole proprietor does not receive salary. Rather any amount withdrawn from the company for the proprietor’s personal use is debited to the proprietor’s drawing account. The drawing account is a contra to the owner’s Equity Account.
Q: For a typical business, how would you classify the following costs
(i.e., variable, committed fixed, discretionary fixed, or mixed.)
- Annual insurance premium
- Phone bill
- Raw material costs
- Factory depreciation
- Advertising
- Charitable contributions
Answer:
- Annual insurance premium - Committed fixed
- Phone bill - Mixed
- Raw material costs - Variable
- Factory depreciation - Committed fixed
- Advertising - Discretionary fixed
- Charitable contributions - Discretionary fixed
Q: Fill in the Blanks
Past, historical costs are also known as ______________ costs.
Expenses that are part fixed and part variable are known as __________ costs.
The statistical tool used to determine the fixed and variable portions of a mixed expense is _____________ analysis.
Answer:
Past, historical costs are also known as sunk costs.
Expenses that are part fixed and part variable are known as mixed costs.
The statistical tool used to determine the fixed and variable portions of a mixed expense is regression or least-squares method analysis.
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