Robyn Blake has invented a new type of fly swatter. After thinking it through carefully, she has decided to quit her $5,000 per month job with a start-up tech company to produce and sell the fly swatters full time. Robyn will rent a garage that will be used as a production plant. The rent will be $300 per month. She will also rent production equipment at a cost of $1,000 per month. The cost of materials for each fly swatter will be $0.60. Robyn will hire workers to produce the fly swatters. They will be paid $ l .00 for each completed unit. Robyn will rent a room in the house next door for use as her sales office. The rent will be $150 per month. She will add extended voicemail to her mobile plan to ensure she gets after-hours messages from customers. The feature will cost $5 per month. Robyn has savings that are earning her interest of $2,000 per year. She plans to withdraw all of her savings to use in getting the business started for the first year. Robyn plans to advertise her product in numerous trade publications at a cost of $400 per month. She plans to pay her sales staff a commission of $0.20 for each fly swatter sold. She does not plan to take any salary from the new company for the first year. Robyn has already paid the legal fees required to incorporate her new company at a total cost of $1,000.

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

List the different costs associated with the new product decision down the left column (under Name of the Cost). Then place an X under each heading that describes the type of cost involved. Several column headings may have an X under them for a single cost. (For example, 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.)
2. All of the costs you should have listed above, except one, would be differential costs between the alternatives of Robyn setting up her company or staying at her job with the tech company. Which item is not a differential cost? Explain.

Transcribed Image Text:

Name of the Cost Variable Fixed Cost Cost Product Cost Direct Direct Materials Labour Manufacturing Overhead Period (Selling and Administrative) Cost Opportunity Sunk Cost Cost