ACCA Applied Knowledge · Management Accounting · Cost classification
Which of the following is most likely to be a variable cost for a manufacturing company?
Packaging materials used for each unit sold is the variable cost, because total spend rises and falls directly with the number of units. The insurance premium, straight-line depreciation and manager's salary stay constant regardless of output in the relevant range.
- AAnnual insurance premium on the factory building
- BStraight-line depreciation of machinery
- CPackaging materials used for each unit soldCorrect
- DSalary of the factory manager
Explanation
Packaging materials are consumed in proportion to the number of units, so the total cost varies with activity. Insurance, straight-line depreciation and a manager's salary are all unchanged by output within the relevant range, so they are fixed costs.
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