Question

2. Costs are classified in many different ways, The following are costs that were incurred by Nike, Inc. a. rubber for the sole of the shoe, $6 per shoe b. rent on the manufacturing facility building, $188,000 annually c. sales manager salary, $127,000 annually d. worker who operates the machine that puts the shoe together, $2 per shoe e. shoe laces, $1.80 per shoe f. worker who puts the shoes in the shoe box, $0.20 per shoe g. insurance on the manufacturing facility, $23,000 annually h. water and utilities, $22,000 per month consistently i. depreciation on manufacturing equipment, $18,000 each month j. already contracted advertising on television, $1,800,000 annually k. sales commission paid to salespeople based on 5 % of sales 1 office supplies, usually approximately $3,000 per month m. paper for the copier in the executive offices, usually about $1,200 per month n. glue used in the shoe, approximately $0.18 per shoe o. company jet lease, $14,000 per month REQUIRED: Indicate which costs are fixed (F) and which are variable (V). 3. Using the same information that is given in problem 2 above, calculate the cost of producing one shoe when production is 100,000 shoes. (Assume this list is all the costs incurred to produce and sell the shoes, even though it is not all the costs a company like Nike would incur.)

Answer 1

tired level Ex Page 1 costs are costs that do not vary with the of production. Rent of the building remains the same, even if you produce I shoe of a 1000 Shoen. Variable costs are costs that vary with the level of production. Ex: Raw material Cost depends on the number of shoes produced. Now for the answer. (a) Rubber for the sole of the shoe Variable cost (b) Rent on the building - Fined. (0) Saler manager salary - tined. (d) Wager to worker - Variable. lel shoe lacer - Variable (f) worker who put shoes in box. Variable (g) insurance expeme- Fined. (h) water and utilitier - Fined. (1) depreciation - Fined. i advertisement expene fined. W Saler Comminion paid Variable (1) office supplies - fired. (m) paper used in office - Fined. In que used in shoe- Variable (o) Company jet lease a fined.

PAGE NO Page 2 Determination of cost of production of one shoes let un anume to me that the Company produced a 100,000 shoer in I year. Determination of Cost of production: Amour Cfor 100,ooo sh $600,000 $ 200,000 Variable Cast: Particulan Rate (for I shoel Rubber for the sole $6 Wager to worker who l $2 Operater machinery shoe lacer $11.8 wages to worken who & $0.00 puts shoe in shoe box I glue used in shoe Total variable Costs $180,000 $20,000 $18,000 $ 1,0 18,000 Fixed Costs: Particular Rent on building Sales manager Salary water and utilizer ($220.008 12) = Depreciation ($ 18,000 x 12) = advertisement insurance day Amour $188,000 $ 121,000 $ 23,000 $264,000 $216,000 $1,800,000

Embun PAGE NO. DATE Page-3 Particular Amount office Supplies ($3,000* 12) $36,000 paper for Coop Copier ($1,2008 12) $14,400 "Company jet lease ( $14,000* 12) $168,000 Jotal fixed cost. 2,836, 400 Total Cost to produce 100,000 shoes . = $ 1018,000 +$2,836,400 = $3,854,400 Cast of producing 16shoe = $3,854,400 - 100,000 - - $38.544 per shoe.