Test Your Knowledge/Questions On Costs Classification or Cost Concept

1 Classify each of the following as being fixed(F), variable(V) or semi-variable(SV):

(a) direct labor;
(b) depreciation on machinery;
© factory rental;
(d) supplies and other indirect materials;
(e) advertising;
(f) maintenance of machinery;
(g) factory manager’s salary;
(h) supervisory personnel;
(i) royalty payments.


2 Which of the following costs are likely to be controllable by the head of the production department?

(a) price paid for materials;
(b) charge for floor space;
(c) raw materials used ;
(d) electricity used for machinery;
(e) machinery depreciation;
(f) direct labour;
(g) insurance on machinery;
(h) share of cost of industrial relations department.


3. For the relevant cost data in items (1) to (7), indicate which of the following is the best classification:

(a) sunk cost
(b) incremental cost
(c) variable cost
(d) fixed cost
(e) semi-variable cost
(f) semi-fixed cost
(g) controllable cost
(h) non-controllable cost
(i) opportunity cost


1) A company is considering selling an old machine. The machine has a book value of $15,000. In evaluating the decision to sell the machine, the $ 15,000 is a …..

2) As an alternative to the old machine, the company can rent a new one. It will cost $10,000 a year. Analysing the cost-volume behaviour the rental is…

3) To run the firm’s machines, there are 2 alternative courses of actions. One is to pay the operator a base salary plus a small amount per unit produced. This makes the total cost of the operator a…

4) As an alternative, the firm can pay the operator a flat salary. It would then use 1 machine when volume is low, 2 machines when it expands, and 3 during peak periods. This means that the total operator cost would now be a….

5) The machine mentioned in (1) could be sold for $11,000. If the firm considers retaining and using it, the $11,000 is a….

6) If the firm wishes to use the machine any longer, it must be repaired. For the decision to retain the machine, the repair cost is a …

7) The machine is charged to the foreman of each department at a rate of $13,000 a year. In evaluating the foreman, the charge is a …


4. A company manufactures and retails clothing. You are required to group the costs which are listed below and numbered (1) – 20) into the following classifications (each cost is intended to belong to only one classification);

(a) direct materials
(b) direct labor
(c) direct expenses
(d) indirect production overhead
(e) research and development costs
(f) selling and distribution costs
(g) administration costs
(h) finance costs

(1) Lubricant for sewing machines
(2) Floppy disks for general office computer
(3) Maintenance contract for general office photocopying machine
(4) Telephone rental plus metered calls
(5) Interest on bank overdraft
(6) Performing rights society charge for music broadcast throughout the factory
(7) Market research undertaken prior to a new product launch
(8) Wages of security guards for factory
(9) Carriage on purchase of basic raw materials
(10) Royalty payable n number of units of product XY produced
(11) Road licences for delivery vehicles
(12) Parcels sent to customers