FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Classification of Costs Jan Holliday Dance Studios is a chain of 45 wholly owned dance studios
that offer private lessons in ballroom dancing. The studios are located in various cities throughout the
southern and southeastern states. Holliday offers a set of 12 private lessons; students may pay for the
lessons one at a time, but each student is required to enroll for at least a 12-lesson plan. The 20-, 40-,
and 100-lesson plans offer savings. Each dance instructor is paid a small salary plus a commission
based on the number of dance lessons provided.
Required
1. Holliday’s owner is interested in a strategic analysis of the business. The owner wants to understand
why overall profitability has declined slightly in the most recent year while other studios in the area
seem to be doing well. What is the proper cost object to begin this analysis? Explain your choice.
2. For each of the following cost elements, indicate whether the cost should be classified as (a) direct,
(b) indirect, (c) variable, and (d) fixed with respect to the cost object you selected in requirement 1.
In some cases, two or more classifications may apply.)
1. Each dancing instructor’s salary
2. Manager’s salary
3. Music tapes used in instruction
4. Utilities for the studio
5. Part-time studio receptionist
6. Planning and development materials sent from the home office
7. Free lessons given by each studio as a promotion
8. Regional TV and radio advertisements placed several times a year
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