Melissa Vassar has decided to open a printing shop. She has secured two contracts.

One is a five-year contract to print a popular regional magazine. This contract calls for 5,000 copies each month. The second contract is a three-year agreement to print tourist brochures for the state. The state tourist office requires 10,000 brochures per month. lop25 Melissa has rented a building for $1,400 per month. Her printing equipment was purchased for $40,000 and has a life expectancy of 20,000 hours with no salvage value. Depreciation is assigned to a period based on the hours of usage. Melissa has scheduled the delivery of the products so that two production runs are needed. In the first run, the equipment is prepared for the magazine printing. In the second run, the equipment is reconfigured for brochure printing. It takes twice as long to configure the equipment for the magazine setup as it does for the brochure setup. The total setup costs per month are $600.

Insurance costs for the building and equipment are $140 per month. Power to operate the printing equipment is strongly related to machine usage. The print- ing equipment causes virtually all the power costs. Power costs will run $350 per month. Printing materials will cost $0.40 per copy for the magazine and $0.08 per copy for the brochure. Melissa will hire workers to run the presses as needed (part-time workers are easy to hire). She must pay $10 per hour. Each worker can produce 20 copies of the magazine per printing hour or 100 copies of the brochure. Distribution costs are $500 per month. Melissa will receive a salary of $1,500 per month. She is responsible for personnel, accounting, sales, and pro- duction—in effect she is responsible for coordinating and managing all aspects of the business.

Required:

1. What are the total monthly manufacturing costs? 2. What are the total monthly prime costs? total monthly prime costs for the re- gional magazine? for the brochure? Did you use direct tracing, driver tracing, or allocation to assign costs to each product? 3. What are total monthly conversion costs? Suppose that Melissa wants to deter- mine monthly conversion costs for each product. Assign monthly conversion costs to each product using direct tracing and driver tracing whenever possible. For those costs that cannot be assigned using a tracing approach, you may as- sign them using direct labor hours. 4. If Melissa receives $1.80 per copy of the magazine and $0.45 per brochure, how much will her income be for the first month of operations? (Prepare an income statement.)