Question

True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret is a unique process for weaving high-tension wire into the center of the shaft such that energy is accumulated during the swing and released at impact. A specialized machine costing $3,000,000 is utilized in the manufacturing process. The machine has a 3-year life and no salvage value. True Flight uses straight-line depreciation. During the year, 25,000 shafts were produced, and the company was operating at full capacity. $700,000 of wire was used during the year. Is machinery depreciation fixed or variable? Is wire fixed or variable?

Answer 1

Answer and Explanation:

Depreciation of machines is a fixed cost (Fixed expenses) because the profit doesn't shift, also not depending on the level of output. The cost (expenses) of the wire varies because it fully depends on the amount of production ( golf clubs) made.

Therefore, Deprecation Describe as fixed cost and Wire include in Variable cost.