Question

The Plastechnics Company began operations several years ago. The company's product requires materials that cost $25 per unit. The company employs a production supervisor whose salary is $2,000 per month. Production line workers are paid $15 per hour to manufacture and assemble the product. The company rents the equipment needed to produce the product at a rental cost of $1,500 per month. The building is depreciated on the straight-line basis at $9,000 per year.

The company spends $40,000 per year to market the product. Shipping costs for each unit are $20 per unit.

The company plans to liquidate several investments in order to expand production. These investments currently earn a return of $8,000 per year.

Required:

Complete the answer sheet below by placing an "X" under each heading that identifies the cost involved. The "Xs" can be placed under more than one heading for a single cost, e.g., a cost might be a sunk cost, an overhead cost, and a product cost.

	Variable Cost	Fixed Cost	Direct Material Cost	Direct Labor Cost	Manufacturing Overhead Cost	Period Cost	Opportunity Cost
Shipping cost
Production Supervisor Salary
Production Line Workers Wages
Equipment rental
Building depreciation

Answer 1

Variable Cost Fixed Cost Direct Material Cost Direct Labor Cost Manufacturing Overhead Cost Period Cost Opportunity Cost X Cost items Shipping cost Production Supervisor Salary Production Line Workers Wages Equipment rental Building depreciation X X Explanation: Product costs are those costs which are incurred at the factory level during production process which may be direct or indirect costs. Of which, variable product costs will change when production volume increases or decreases whereas fixed product costs do not change, unless there are some conditions that have the capability to decrease or cause to increase the same. Product cost is nothing but the manufacturing cost which include direct materials, direct labor, variable & fixed mfg. overheads. Here, direct materials and direct labor are direct costs. Period costs are those costs which are incurred outside the factory but for carrying out firm's selling and administrative related operating activities and financing activities. Of which, variable period costs will change when sales volume increases or decreases whereas fixed period costs do not change, unless there is any particular condition that has the capability to decrease and cause to increase the same.

Fixed costs are those costs which would remain the same in total irrespective of level of production or sales. It is a committed cost to be incurred by the firm whether it carries out operations or not. Variable costs are those costs which would remain the same per unit irrespective of level of production or sales. It is an unit cost to be incurred by the firm only when the firm carries out its business operation. Manufacturing overhead costs are indirect costs incurred at factory in general for carrying out manufacturing process. These costs are not directly attributable to any particular products but they are common costs attributable to all products manufactured in the factory.