Cost Type and Cost Classification Explained

What are the cost types and classifications for the following costs?

A) Fixed, Direct

B) Fixed, Indirect

C) Variable, Direct

D) Variable, Indirect

E) Mixed, Direct

F) Mixed, Indirect

Cost Type and Classification:

A) Fixed, Direct

B) Fixed, Indirect

C) Variable, Direct

D) Variable, Indirect

E) Mixed, Direct

F) Mixed, Indirect

Explanation: Cost type refers to how a cost behaves in relation to changes in activity levels, while cost classification refers to whether a cost can be directly traced to a specific product or activity (direct) or not (indirect).

A) Fixed, Direct:

This cost is fixed because it remains constant regardless of the level of production or activity. It is direct because it can be specifically attributed to a particular product or activity.

B) Fixed, Indirect:

This cost is fixed because it does not change with variations in production or activity levels. However, it is indirect because it cannot be directly traced to a specific product or activity.

C) Variable, Direct:

This cost is variable because it changes in direct proportion to changes in production or activity. It is direct because it can be traced directly to a specific product or activity.

D) Variable, Indirect:

This cost is variable because it varies with changes in activity, but it is indirect because it cannot be directly linked to a specific product or activity.

E) Mixed, Direct:

This cost is mixed because it includes both fixed and variable components. It is direct because it can be attributed to a specific product or activity, although part of it may remain fixed.

F) Mixed, Indirect:

This cost is mixed because it consists of both fixed and variable elements. It is indirect because it cannot be directly allocated to a specific product or activity.

In summary, each cost is identified based on its cost type (fixed, variable, mixed) and cost classification (direct, indirect) as described above.