Kater Company manufactures shelving units. The company receives pre-cut wood, drills holes in the wood so that movable shelves may be installed, then assembles and paint the units. Classify each of the following items of factory overhead as either fixed or variable cost

Question

a. Janitorial service (an outside service, not company employees)

b. Supervisor of the Drilling Department

c. Oil used to lubricate drill press machines

d. Propane for forklift trucks used to move the material from the Drilling Department to the Assembly Department

e. Natural gas used to heat the plant

f. Security guard

g. Drill bits used in the drilling department

h. Insurance on factory building

i. Electricity to power drill press machines

j. Rent of factory building

Answer 1

a. Fixed. A janitorial service is most likely hired for a nightly cleaning, regardless of production volume.
b. Fixed. The cost of supervisors is likely to remain constant unless production volumes increase significantly.
c. Variable. The higher the production volume, the more the presses will run and more oil will be required to lubricate them.
d. Variable. The higher the production volume, the more the forklifts will be needed to move materials to the Assembly Department.
e. Fixed. Heating costs will not vary in proportion to production volumes.
f. Fixed. Increased production volumes will not necessitate additional security, which is dictated more by plant size, location and type of business.
g. Variable. Drill bits wear out as they are being used. Increased production volumes will call for an increased number of drill bits.
h. Fixed. Insurance premium based on value of building, not on production volumes.
i. Variable. Increased production volumes will necessitate increased electricity usage.
j. Fixed. Building rental determined by contract, not production volumes.