Many new cost terms have been introduced in this chapter. It will take you some time to learn what each term means and how to properly classify costs in an organization. Consider the following example: Porter Company manufactures furniture, including tables. Selected costs are given below:

1. The tables are made of wood that costs $100 per table.

2. The tables are assembled by workers, at a wage cost of $40 per table.

3. Workers assembling the tables are supervised by a factory supervisor who is paid $38,000 per year.

4. Electrical costs are $2 per machine-hour. Four machine-hours are required to produce a table.

5. The depreciation on the machines used to make the tables totals $10,000 per year. The machines have no resale value and do not wear out through use.

6. The salary of the president of the company is $100,000 per year.

7. The company spends $250,000 per year to advertise its products.

8. Salespersons are paid a commission of $30 for each table sold.

9. Instead of producing the tables, the company could rent its factory space for $50,000 per year.

Required:

Classify these costs according to the various cost terms used in the chapter. Carefully study the classification of each cost. If you don’t understand why a particular cost is classified the way it is, reread the section of the chapter discussing the particular cost term. The terms variable cost and fixed cost refer to how costs behave with respect to the number of tables produced in a year.