Question

Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building 10 years ago. For several years, the company has rented out a small annex attached to the rear of the building for $30,000 per year. The renter's lease will expire soon, and rather than renewing the lease, the company has decided to use the annex to manufacture a new product. Direct materials cost for the new product will total $80 per unit. To have a place to store its finished goods, the company will renta small warehouse for $500 per month. In addition, the company must rent equipment for $4,000 per month to produce the new product. Direct laborers will be hired and paid $60 per unit to manufacture the new product. As in prior years, the space in the annex will continue to be depreciated at $8,000 per year. The annual advertising cost for the new product will be $50,000. A supervisor will be hired and paid $3,500 per month to oversee production Electricity for operating machines will be $1.20 per unit. The cost of shipping the new product to customers will be $9 per unit. To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments These investments are presently yielding a return of $3,000 per year, Required: Using the table shown below.describe each of the costs associated with the new product decision in four ways. In terms of cost classifications for predicting cost behavior (column 2), indicate whether the cost is fixed or variable. With respect to cost classifications for manufacturers (column 3), if the item is a manufacturing cost, indicate whether it is direct materials, direct labor, or manufacturing overhead. If it is a nonmanufacturing cost, then select "none" as your answer. With respect to cost classifications for preparing financial statements (column 4), indicate whether the item is a product cost or period cost. Finally, in terms of cost classifications for decision making (column 5). Identify any items that are sunk costs or opportunity costs. If you identify an item as an opportunity cost, then select "none" as your answer in columns 2-4

Answer 1

Answers PageNoo from the problem, * * Indicate the cost is fixed or Variable. Indicate wheather It ia direct materials, diorect labor or Manufacturing overhead and it is non Manufacturing cost then select to none none = (- ) Indicate wheather the item iş a product or period cost. * * Identity any itemą that are sunk or opportunity cost By using these values then we get the table as shown I below.

PageNo ④ . Required: Predicting Name of Cost post behaviour Rental revenuen forgona, 3000 per yeay Preparing | Decision d financial Statement - Making opportunity coşts Direct Material Product Cost a Direct material.com Variable at 80 par cost 3 Rental cost of I Fixed Llore house, soo pear coat Month 4 Rental cost of Equip Finced -memt , 4000 per month cost Period cost Manutacturing Product overhead | Cost! 5 Diouct labor cost, 6o per unit Variable cost Direct Material / Product cost 6 Depreciation of the annex Space 8000 Fixed CORE Manufactut ring over | Product cost Sunk cost Per year O head Advertising cost fixed - Period cost 50000 pey year Cost Electricity for Machind Variable Manufacturing Product cast . 1.20 perunit Coat overhead Y 19 Supervisor's salary Manustacturing Product cost . 1500 per month I cost overhead 19 Shipping cost, a per Variable Period cast Cost Return earned on Investments 3000 Per Year I unit oppurtunity Cost