Question

PROBLEM 2–13 Cost Classification [LO2, LO5, LO6] 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 1,000 bicycles were manufactured, shipped, and sold. There was no beginning or ending work in process or finished goods inventory in November: Item October November Units produced and sold Sales ... 900 1.000 $900,000 $1,000,000 30,000 6,000 Leather used for the bicycle seats Production manager's salary. Life insurance for the company president. Electricity used in the production facilities* Sales commissions 27,000 6,000 200 200 1,000 1,100 45.000 50,000 Internet advertising . Employee benefits for the production workers Property taxes on the production facilities Shipping costs....... 1,000 1,000 20,000 1,000 18.000 1,000 45,000 10,000 50,000 Salary of the chief financial officer 10.000 *Each month, regardless of how much electricity is used, Cycle Business pays a $100 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 5 hours of direct labour. Required: With respect to the partial list of November expenses, answer the following: Which items represent variable manufacturing costs? b. 1. a. Which items represent fixed manufacturing costs? Chapter 2 Cost Terms, Concepts, and Classifications 50 If the bicycle is the cost object, which items from (a) and (b) above are direct costs and which C. are indirect costs? Which items would be classified as selling expenses? Which items would be classified as administrative expenses? Assume that 1,200 bicycles will be manufactured and sold in December. For the items you classi- fied as manufacturing costs in (1), estimate the cost for December. Assume that there will be no d. e. 2. change in unit costs for any direct materials, hourly wages will remain the same, and employee benefits will continue at 20% of wages.

Answer 1

1)
a)
	Leather used for Bicycle seats	Variable manufacturing
	Production manager salary	-
	Life insurance for president	-
	Electricity	-
	Sales commission	-
	Advertising	-
	Employee benefits	-
	Property traxes	-
	Shipping cost	-
	Salary of CFO	-
b)
	Leather used for Bicycle seats	-
	Production manager salary	Fixed Manufacturing
	Life insurance for president	-
	Electricity	Fixed Manufacturing
	Sales commission	-
	Advertising	-
	Employee benefits	Fixed Manufacturing
	Property traxes	Fixed Manufacturing
	Shipping cost	-
	Salary of CFO	-
c)
	Leather used for Bicycle seats	Direct cost
	Production manager salary	Indirect cost
	Life insurance for president	-
	Electricity	Indirect cost
	Sales commission	-
	Advertising	-
	Employee benefits	Indirect cost
	Property traxes	Indirect cost
	Shipping cost	-
	Salary of CFO	-
d)
	Leather used for Bicycle seats	-
	Production manager salary	-
	Life insurance for president	-
	Electricity	-
	Sales commission	-
	Advertising	Selling
	Employee benefits	-
	Property traxes	-
	Shipping cost	Selling
	Salary of CFO	-
e)
	Leather used for Bicycle seats	-
	Production manager salary	-
	Life insurance for president	Administrative
	Electricity	-
	Sales commission	Administrative
	Advertising	-
	Employee benefits	-
	Property traxes	-
	Shipping cost	-
	Salary of CFO	Administrative