Which of the following is NOT a variable cost?
Select one:-
A. direct material costs.
B. straight-line deprecation on factory equipment.
C. direct labour costs.
D. indirect material costs.
The Correct Answer and Explanation is :
The correct answer is B. straight-line depreciation on factory equipment.
Explanation:
In cost accounting, variable costs are costs that change in direct proportion to the level of production or activity. These costs increase as production increases and decrease when production decreases. On the other hand, fixed costs remain constant regardless of production volume within a certain range.
Let’s examine each option:
A. Direct material costs
Direct material costs are the costs of raw materials that are used directly in the production of goods. These costs are variable because the total direct material cost will vary depending on the quantity of production. If more units are produced, more materials are needed, increasing the total cost. Therefore, direct material costs are a variable cost.
B. Straight-line depreciation on factory equipment
Straight-line depreciation is a method of calculating the depreciation of an asset over time, where the asset’s value is reduced equally over its useful life. This cost is typically fixed because the same amount of depreciation expense is recognized in each period, regardless of the level of production. Factory equipment’s depreciation remains constant regardless of whether the factory produces more or fewer units. As such, straight-line depreciation is a fixed cost, not a variable cost.
C. Direct labour costs
Direct labor costs refer to the wages and salaries of workers who are directly involved in the production of goods. These costs are variable because they change with the level of production. If more units are produced, more labor hours are required, leading to higher direct labor costs.
D. Indirect material costs
Indirect material costs refer to materials that are used in the production process but are not directly traceable to specific units of product, such as lubricants or cleaning supplies. These costs can be variable or fixed depending on how they are consumed. However, they are often treated as variable because they fluctuate with production levels.
In summary, straight-line depreciation (Option B) does not change with production levels, which is why it is considered a fixed cost and not a variable cost.