Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Types of Accounting

Financial Accounting

1. Introduction to Accounting

Types of Accounting

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Multiple Choice

Which of the following classifications of cost items by cost behavior is correct?

Direct materials: Variable cost; Factory rent: Fixed cost; Indirect labor: Fixed cost

Direct materials: Fixed cost; Factory rent: Variable cost; Indirect labor: Fixed cost

Direct materials: Fixed cost; Factory rent: Fixed cost; Indirect labor: Variable cost

Direct materials: Variable cost; Factory rent: Fixed cost; Indirect labor: Variable cost

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Verified step by step guidance

Step 1: Understand the concept of cost behavior. Costs are classified as either variable or fixed based on how they change with the level of activity. Variable costs change directly with production volume, while fixed costs remain constant regardless of production levels.

Step 2: Analyze the cost item 'Direct materials.' Direct materials are typically considered variable costs because the amount used depends on the quantity of goods produced. For example, more raw materials are needed as production increases.

Step 3: Examine the cost item 'Factory rent.' Factory rent is generally classified as a fixed cost because it does not change with the level of production. The rent remains constant regardless of how many units are produced.

Step 4: Evaluate the cost item 'Indirect labor.' Indirect labor can be classified as either fixed or variable depending on the nature of the work. However, in most cases, indirect labor (e.g., supervisors' salaries) is considered a fixed cost because it does not vary directly with production levels.

Step 5: Compare the classifications provided in the options with the explanations above. The correct classification should align with the definitions of variable and fixed costs for each cost item: Direct materials (Variable cost), Factory rent (Fixed cost), Indirect labor (Fixed or Variable cost depending on context).