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A company has a performance related pay scheme in operation.
What is the most appropriate cost classification for the salaries of the manager?
Fixed cost
Stepped fixed cost
Semi-variable costI think the answer is semi-variable cost. But not 100% sure. The alternative would be stepped fixed cost.
It depends on the type of managers. If we assume that managers are permanent staff members, and their salary depends on the amount of customers/orders and etc., then it seems like these costs are purely variable costs. Then it would be more appropriate to treat managers salaries as semi-variable costs.
Stepped costs – clearly this is a wrong answer. The stepped costs – a type of fixed cost that is only fixed within certain levels of activity.
But my best guess, fixed costs. If we’re talking about managers in common sense (not sales managers and etc.), people who are responsible for making decisions, then fixed costs would be the most appropriate measure, as they’re making decisions, and their salary doesn’t depend on the amount of units produced (as they’re not doing it). Their bonus might depend on different measurements, but this is not an actual salary.
Managers are usually permanent members of staff who are paid for the full year regardless of their working hours.
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