Question

California Tires manufactures two types of​ tires, that it sells as wholesale products to various specialty retail auto supply stores. Each tire requires a​ three-step process. The first step is mixing. The mixing department combines some of the necessary direct materials to create the material mix that will become part of the tire. The second step includes the forming of each tire where the materials are layered to form the tire. This is an entirely automated process. The final step is​ finishing, which is an entirely manual process. The finishing department includes curing and quality control.

Costs involved in the process are listed next. For each​ cost, indicate whether it is a direct​ variable, direct​ fixed, indirect​ variable, or indirect fixed​ cost, assuming​ ""units of production of each kind of​ tire"" is the cost object.]

Answer 1

In the tire manufacturing process, the mixing department's direct materials cost is a direct variable cost, the forming process's cost is an indirect variable cost, and the finishing department's curing and quality control costs are direct fixed costs.

Step-by-step explanation:

The direct materials cost incurred in the mixing department is directly tied to the number of tires produced, making it a direct variable cost. The forming process, being entirely automated, incurs indirect variable costs, as the automation may be affected by changes in production levels.

The curing and quality control costs in the finishing department are direct fixed costs. These costs remain constant regardless of the number of tires produced within a certain range, and they are directly associated with the finishing process, which is a manual operation. The direct fixed costs provide a stable base cost for the finishing department, unaffected by changes in production volume.

Identifying the nature of these costs is essential for effective cost management and decision-making. Variable costs vary with production levels, while fixed costs remain constant within a certain production range. Direct costs are directly traceable to the cost object, which in this case is the production of each type of tire. Understanding these distinctions helps in accurately assessing the total cost structure and making informed financial decisions for California Tires.