A company in the process industry produces a chemical compound that is sold to manufacturers for use in the production of certain plastic products. The plant that produces the compound employs approximately 300 people. Develop a list of five different cost elements that would be fixed and a similar list of five cost elements that would be variable.

 

Fixed Cost Elements:

1. Executive salaries and the related cost of benefits
2. Salaries and other expenses associated with operating a legal department
3. Operation and maintenance (O&M) expenses for physical facilities (buildings, parking lots, landscaping, etc.)
4. Insurance, property taxes, and any license fees
5. Other administrative expenses (personnel not directly related to production; copying, duplicating, and graphics support; light vehicle fleet; etc.)

Variable Cost Elements:

1. Direct labor
2. Materials used in the product or service
3. Electricity, lubricating and cutting oil, and so on for equipment used to produce a product or deliver a service
4. Replacement parts and other maintenance expenses for jigs and fixtures
5. The portion of the costs for a support activity (to production or service delivery) that varies with quantity of output (e.g., for central compressed air support: electricity, replacement parts, and other O&M expenses)