Tuesday 24 July 2012

Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity.

Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity. The company has a backlog of orders that is large enough to keep production going indefinitely at the plant's full capacity of 4,000 bookcases per year. Annual cost data at full capacity follow:

  
  Direct materials used (wood and glass) $ 430,000   
  Administrative office salaries $ 110,000   
  Factory supervision $ 70,000   
  Sales commissions $ 60,000   
  Depreciation, factory building $ 105,000   
  Depreciation, administrative office equipment $ 2,000   
  Indirect materials, factory $ 18,000   
  Factory labor (cutting and assembly) $ 90,000   
  Advertising $ 100,000   
  Insurance, factory $ 6,000   
  Administrative office supplies (billing) $ 4,000   
  Property taxes, factory $ 20,000   
  Utilities, factory $ 45,000   


Required:
1.
Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as either variable or fixed with respect to the number of units produced and sold; and second, as either a selling and administrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect.) (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Cost Behavior
Selling or Administrative
Product Cost
Cost Item       Variable     Fixed      Cost      Direct         Indirect
  Direct materials used (wood, glass) $     $     $     $     $    
  Administrative office salaries                    
  Factory supervision                    
  Sales commissions                    
  Depreciation, factory building                    
  Depreciation, admin. office equipment                    
  Indirect materials, factory                    
  Factory labor (cutting and assembly)                    
  Advertising                    
  Insurance, factory                    
  Administrative office supplies (billing)                    
  Property taxes, factory                    
  Utilities, factory                    





  Total costs $     $     $     $     $    












2.
Compute the average product cost per bookcase. (Omit the "$" sign in your response.)

  Average product cost $  per bookcase

3.
Due to a recession, assume that production drops to only 2,000 bookcases per year. Would you expect the average product cost per bookcase to increase, decrease, or remain unchanged?
Increase


Explanation:

Listed below are costs found in various organizations. For each cost item, indicate whether it would

Listed below are costs found in various organizations. For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it would typically be treated as a direct cost or an indirect cost with respect to units of product.
                                             
Cost Item Variable or Fixed       Selling Cost       Administrative Cost        Direct         Indirect       
Ex. Direct labor Variable                    X             
Executive salaries Fixed     X     
Factory rent Fixed                  X    
1.  Depreciation, executive jet   Fixed correct   No correct   Yes correct   No correct   No correct
2.  Costs of shipping finished goods to customers   Variable correct   Yes correct   No correct   No correct   No correct
3.  Wood used in manufacturing furniture   Variable correct   No correct   No correct   Yes correct   No correct
4.  Sales manager’s salary   Fixed correct   Yes correct   No correct   No correct   No correct
5.  Electricity used in manufacturing furniture   Variable correct   No correct   No correct   No correct   Yes correct
6.  Secretary to the company president   Fixed correct   No correct   Yes correct   No correct   No correct
7.  Aerosol attachment placed on a spray can produced by the company   Variable correct   No correct   No correct   Yes correct   No correct
8.  Billing costs   Variable correct   Yes correct   Yes correct   No correct   No correct
9.  Packing supplies for shipping products overseas   Variable correct   Yes correct   No correct   No correct   No correct
10.  Sand used in manufacturing concrete   Variable correct   No correct   No correct   Yes correct   No correct
11.  Supervisor’s salary, factory   Fixed correct   No correct   No correct   No correct   Yes correct
12.  Executive life insurance   Fixed correct   No correct   Yes correct   No correct   No correct
13.  Sales commissions   Variable correct   Yes correct   No correct   No correct   No correct
14.  Fringe benefits, assembly line workers   Variable correct   No correct   No correct   Yes correct   Yes correct
15.  Advertising costs   Fixed correct   Yes correct   No correct   No correct   No correct
16.  Property taxes on finished goods warehouses   Fixed correct   Yes correct   No correct   No correct   No correct
17.  Lubricants for production equipment   Variable correct   No correct   No correct   No correct   Yes correct