E5-1 Identifying Cost Behavior Patterns [LO 5-1]

Steve Silversmith produces unique and exclusive sterling silver rings, pendants, buckles, and chains. Steve pays one supervisor to oversee the work performed by several part-time silversmiths. He pays each silversmith to work 20 hours per week or 40 hours week, depending on production demand. He also hires a jewelry expert to perform quality assurance inspections and pays her based on the weight (per ounce of silver) of each piece inspected. The controller and the sales manager are discussing potential price increases due to the increasing cost of silver and increases in other costs.

Required:

The following are several costs they are discussing. Indicate whether each cost is a variable, fixed, step, or mixed cost within Steves relevant range of activity.

a. Depreciation on production equiepment

b. Supervisor salary

c. Packaging (each piece is packaged in a designer cartoon)

d. Silver

e. Part-time labor (silversmith)

f. Production facility utilities

g. Quality assurance

h. Mortgage on the production facility