Costs and Direct Cost

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Universiti Kebangsaan Malaysia

Graduate School Of Business
(UKM-GSB-LHDN)

Cost Classification:
Government Agency

PROBLEM 2-56
The Department of Natural Resources is responsible for maintaining the state’s parks and forest lands, stocking the lakes and rivers with fish, and generally overseeing the protection of the environment. Several cost incurred by the agency are listed below. For each cost, indicate which of the following classifications best describe the cost. More than one classification may apply to the same cost item.

The Answers :

1. Cost of automobiles used by department’s rangers. These cars were purchased by the state, and they would otherwise have been used by the state police. i. Fixed cost
ii. Controllable by the department director
iii. Opportunity cost
iv. Sunk cost
v. Direct cost of the agency
vi. Indirect cost of providing a particular service

2. Cost of live-trapping and moving beaver that were creating a nuisance in recreational lakes. i. Variable cost
ii. Controllable by the department director
iii. Out of pocket cost
iv. Direct cost of the agency
v. Direct cost of providing a particular service

3. The department director’s salary.
i. Fixed
ii. Uncontrollable by the department director
iii. Out of pocket cost
iv. Direct cost of the agency
v. Indirect cost of providing a particular service

4. Cost of containing naturally caused forest fires, which are threatening private property. i. Variable cost
ii. Uncontrollable by the department director
iii. Out of pocket cost
iv. Direct cost of the agency
v. Direct cost of providing a particular service

5. Cost of the fish purchased from private hatcheries, which are used to stock the state’s public water. i. Variable cost
ii. Controllable by the department director
iii. Out of pocket cost
iv. Direct cost of the agency
v. Direct cost of providing a...
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