Question

Riverland Shoes and Boots Inc. manufactures three styles of steel-toed workboots. They are in the process of classifying their costs into a cost hierarchy to get a better understanding of the cause and effect relationships between the various costs and drivers. The plant manager oversees the production of the entire manufacturing facility.What type of cost would the plant manager's salary be in their cost hierarchy?

Answer 1

The plant manager's salary at Riverland Shoes and Boots Inc. is considered a fixed cost, specifically a facility-level cost, as it does not vary with the level of production output.

Step-by-step explanation:

The plant manager's salary at Riverland Shoes and Boots Inc. would typically be classified as a fixed cost within the cost hierarchy. Fixed costs are those that do not vary with the volume of production; they are incurred regardless of how many units of product a company makes. The plant manager's salary does not change with the number of steel-toed workboots produced, making it a fixed cost, more specifically, it is an example of a facility-level cost which is associated with the costs of running the production facility as a whole.