Question

Cycle Business manufactures and sells road and mountain bikes through a network of retail outlets in western Canada. Below is a partial list of expense items incurred in the most recent month (November), when 1,030 bicycles were manufactured, shipped, and sold. There was no beginning or ending work in process or finished goods inventory in November Item October 930 November 1,030 Units produced and sold Sales Leather used for the bicycle seats Production manager's salary Life insurance for the company president Electricity used in the production facilities* Sales comissions Internet advertising Employee benefits for the production workers t Property taxes on the production facilities Shipping costs Salary of the chief financial officer $ 930,000 30, 690 6,150 215 3,835 45, 300 1,000 29, 760 1,150 45, 300 10, 300 $ 1,030,000 33,990 6,150 215 4, 235 50, 360 1,000 32, 960 1,150 50, 360 10,300 *Each month, regardless of how much electricity is used, Cycle Business pays a $115 base charge to the utilities company. Employee benefits total 20% of the wages paid to production workers, who on average earn $20 per hour. Each bicycle requires 8 hours of direct labour. Required: 1. With respect to the partial list of November expenses: a. Use the Type column to label each item as a Manufacturing, Administrative, or Selling cost. b. For those items you labeled as a Manufacturing cost, i. Use the Behaviour column to label each item as variable or fixed manufacturing costs ii. Use the Direct/Indirect column to label each item as a direct or indirect cost.

Answer 1

Solution: Answer of 1 is correct. Answer for 2 is:
Estimation of manufacturing cost for December
	$	Working
Variable costs:
Leather used	40590	33990 / 1030*1230
Direct labor	196800	1230 x 8hours x $20
Electricity used in the production facilities	4920	($4235-$115)/1030*1230
Enployee benefit for the production workers	39360	$196800 x 20%
Totl vaiable costs	281670
Add: Fixed costs:
Production manager's salary	6150
Electricity base charge	115
Property taxes on production facility	1150
TOTAL COST	289085