Question.3273 - Cost Classification Use a selected company or your current work environment to identify at least one cost or expense that would fit under each of the following categories: Variable Fixed Mixed Step Would your company be more likely to benefit from using a manufacturing cost hierarchy or a customer cost hierarchy for determining cost drivers? Explain your answer and identify one cost for each of the four cost hierarchy categories
Answer Below:
Cost classification - Pizza Hut Restaurant: Variable costs: It increases with increase in activity. For instance, if the number of Pizzas serves is held to be the activity cost driver, the cost of cheese is a variable cost. Fixed costs: It does not change is response to increase or decrease in activity. Property tax or insurance cost can be an example of fixed cost because it does not change with number of Pizzas served. Mixed costs: It is a mix of both fixed and variable costs. For instance, the cost of electricity can be a mixed cost. Basic Electricity required on a daily basis is a fixed cost, however when more pizzas are served there is increased electricity cost which is a variable cost. Step costs: It is cost that stays constant for certain range of activity but changes when activity surpasses certain level. For instance, the employee wages are constant until a certain point, but an excess in Pizzas to be served can require more employees and would increase the cost. The customer cost hierarchy classification can help in determining cost of individual order or customer and hence is a better choice for determining cost drivers for Pizza Hut.More Articles From Finance
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