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Question 2.T-Y-S.A: A company in the process industry produces a chemical compou...

A company in the process industry produces a chemical compound that is sold to manufacturers for use in the production of certain plastic products. The plant that produces the compound employs approximately 300 people. Develop a list of six different cost elements that would be fixed and a similar list of six cost elements that would be variable. (2.1)

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Fixed Cost Elements:

  • Executive salaries and the related cost of benefits
  • Salaries and other expenses associated with operating a legal department
  • Operation and maintenance (O&M) expenses for physical facilities (buildings, parking lots, landscaping, etc.)
  • Insurance, property taxes, and any license fees
  • Other administrative expenses (personnel not directly related to production; copying, duplicating, and graphics support; light vehicle fleet; etc.)
  • Interest cost on borrowed capital

Variable Cost Elements:

  • Direct labor
  • Materials used in the product or service
  • Electricity, lubricating and cutting oil, and so on for equipment used to produce a product or deliver a service
  • Replacement parts and other maintenance expenses for jigs and fixtures
  • Maintenance material and replacement parts for equipment used to produce a product or deliver a service
  • The portion of the costs for a support activity (to production or service delivery) that varies with quantity of output (e.g., for central compressed air support: electricity, replacement parts, and other O&M expenses)

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