Factory supplies in a manufacturing plant are most likely:
A. sunk costs.
B. period costs.
C. variable costs.
D. excluded from product costs.
The correct answer and explanation is :
The correct answer is:
C. Variable costs.
Explanation:
Factory supplies in a manufacturing plant are most likely variable costs because they change in proportion to production levels. These supplies include items like lubricants, cleaning materials, safety gloves, and other consumables necessary for maintaining machinery and ensuring smooth production operations. Since their usage depends on the volume of production, they are classified as variable costs.
Let’s analyze why the other options are incorrect:
- A. Sunk costs – Sunk costs are expenses that have already been incurred and cannot be recovered, such as research and development costs or specialized equipment purchases. Factory supplies are ongoing expenses, not past irreversible costs.
- B. Period costs – Period costs are expenses that are not directly tied to production, such as administrative salaries, marketing expenses, and office rent. Factory supplies, however, are used within the production process, making them product costs rather than period costs.
- D. Excluded from product costs – Product costs include all costs directly associated with manufacturing, including raw materials, labor, and manufacturing overhead. Since factory supplies contribute to production and maintenance, they are included in manufacturing overhead and thus part of product costs.
Conclusion:
Factory supplies are best categorized as variable costs because their consumption increases with production levels. They are part of manufacturing overhead and are included in total production costs. Efficient management of factory supplies is crucial for cost control and operational efficiency in a manufacturing plant.
