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Item1

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Item 1

Item 1 20 points

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 1,080 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		980			1,080
Sales	$	980,000		$	1,080,000
Leather used for the bicycle seats		27,440			30,240
Production manager’s salary		6,400			6,400
Life insurance for the company president		240			240
Electricity used in the production facilities*		4,060			4,460
Sales commissions		45,800			50,960
Internet advertising		1,100			1,100
Employee benefits for the production workers↑		27,440			30,240
Property taxes on the production facilities		1,400			1,400
Shipping costs		45,800			50,960
Salary of the chief financial officer		10,800			10,800
*Each month, regardless of how much electricity is used, Cycle Business pays a $140 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 7 hours of direct labour.

Required:

1. With respect to the partial list of November expenses:

1. Use the Type column to label each item as a Manufacturing, Administrative, or Selling cost.
2. For those items you labeled as a Manufacturing cost,

1. Use the Behaviour column to label each item as variable or fixed manufacturing costs.
2. Use the Direct/Indirect column to label each item as a direct or indirect cost.

2. Assume that 1,280 bicycles will be manufactured and sold in December. For the items you classified as manufacturing costs in requirement 1, estimate the cost for December. Assume that there will be no 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

Answer with working notes is given below

November Type of Expense Type of Behaviour Direct/indirect 1,080 Variable Fixed Direct Indirect Item 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 commissions Internet advertising Employee benefits for the production workers 1 Property taxes on the production facilities Shipping costs Salary of the chief financial officer October 980 $980,000 $27,440 $6,400 $240 $4,060 $45,800 $1,100 $27,440 $1,400 $45,800 $10,800 Variable Indirect $1,080,000 $30,240 Manufacturing $6,400 Manufacturing $240 Administrative $4,460 Manufacturing $50,960 Selling $1,100 selling $30,240 Manufacturing $1,400 Manufacturing $50,960 Selling $10,800 Administrative Variable Fixed Indirect Indirect Working notes: Comments Units produced and sold Leather used for the bicycle seats Per Unit October 980 $27,440 $28.00 November 1,080 $30,240 $28.00 Variable Production manager's salary $6,400 $6,400 Fixed Cost is Constant Life insurance for the company president $240 $240 Fixed Cost is Constant Electricity used in the production facilities Less: Base charges Net charges Per unit Cost is Constant $4,060 $140 $3,920 $4.00 $4,460 $140 Fixed $4,320 $4.00 Variable cost per unit is same Employee benefits for the production workers 1 Per unit $27,440 $28.00 $30,240 $28.00 Variable cost per unit is same | Property taxes on the production facilities $1,400 $1,400 Fixed Cost is Constant 2 Manufacturing cost of 1,280 bicycles Cost per Variable Cost Fixed Cost unit $28 $1401 $28 $35,840 $179,200 $35,840 Leather Labor cost per unit ($20 * 7) Employee benefits cost production manager's salary Electricity used Property taxes on the production facilities Total Cost- December month Total Cost (Variable Cost + Fixed Cost) $35,840 $179,200 $35,840 $6,400 $5,260 $1,400 $263,940 $4.00) $5,120 $6,400 $140 $1,400