Fixed and Variable Costs; Forecasting
Water Technology, Inc. incurred the following costs during 20 × 1. The company sold all of its products manufactured during the year.
Direct material | $3,000,000 |
Direct labor | 2,200,000 |
Manufacturing overhead: |
|
Utilities (primarily electricity) | 140,000 |
Depreciation on plant and equipment | 230,000 |
Insurance | 160,000 |
Supervisory salaries | 300,000 |
Property taxes | 210,000 |
Selling costs: |
|
Advertising | 195,000 |
Sales commissions | 90,000 |
Administrative costs: |
|
Salaries of top management and staff | 372,000 |
Office supplies | 40,000 |
Depreciation on building and equipment | 80,000 |
During 20 × 1, the company operated at about half of its capacity, due to a slowdown in the economy. Prospects for 20 × 2 are slightly better. Jared Lowes, the marketing manager, forecasts a 20 percent growth in sales over the 20 × 1 level.
Required: Categorize each of the costs listed above as to whether it is most likely variable or fixed. Forecast the 20 × 2 cost amount for each of the cost items listed above.
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