Frieda Bronkowski has invented a new type of flyswatter. After giving the matter much thought, Frieda has

Question:

Frieda Bronkowski has invented a new type of flyswatter. After giving the matter much thought, Frieda has decided to quit her $4,000 per month job with a consulting firm and produce and sell the flyswatters full time. Frieda will rent a garage that will be used as a production plant. The rent will be $150 per month. Frieda will rent production equipment at a cost of $500 per month. The cost of materials for each flyswatter will be $0.30. Frieda will hire workers to produce the flyswatters. They will be paid $0.50 for each completed unit. Frieda will rent a room in the house next door for use as her sales office. The rent will be $75 per month. She has arranged for the telephone company to attach a recording device to her home phone to get off-hours messages from customers. The device will increase her monthly phone bill by $20. Frieda has some money in savings that is earning interest of $1,000 per year. These savings will be withdrawn and used for about a year to get the business going. To sell her flyswatters, Frieda will advertise heavily in the local area. Advertising costs will be $400 per month. In addition, Frieda will pay a sales commission of $0.10 for each flyswatter sold. For the time being, Frieda does not intend to draw any salary from the new company. Frieda has already paid the legal and fi ling fees to incorporate her business. These fees amounted to $600.

Required:
1. Prepare an answer sheet with the following column headings:

List the different costs associated with the new company down the extreme left column (under Name of Cost). Then place an X under each heading that helps to describe the type of cost involved. There may be X€™s under several column headings for a single cost. (That is, a cost may be a fixed cost, a period cost, and a sunk cost; you would place an X under each of these column headings opposite the cost.) Under the variable cost column, list only those costs that would be variable with respect to the number of flyswatters that are produced and sold.
2. All of the costs you have listed above, except one, would be differential costs between the alternatives of Frieda producing flyswatters or staying with the consulting fi rm. Which cost is not differential?Explain.