Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines.

Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs.

The materials include $1,000for the wood and other materials of $200. Both items listed are on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%.

The company estimates that it will have 16,000 direct labor hours in total for the kitchen cabinets

It assumes 800units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:

Salaries-office & administrative$ 520,000

Salaries for factory personal$ 220,000

Office Rent $ 125,000

Factory Rent$ 20,000

Utilities and Misc office expenses(based on units sold)$ 20,000

Travel(based on units sold)$ 24,000

Insurance -office$ 12,000

Depreciation -office equipment$ 40,000

Depreciation for factory equipment$ 70,000

Advertising$ 20,000

Sales commissions(based on units sold)$ 45,000

Factory Property taxes$ 10,000

Maintenance for factory equipment$ 80,000

QUESTIONS:

1.Determine the cost of manufacturing one custom kitchenassuming the units given.Assume the MOH costs are allocated based on the direct labor hours per unit.Please show all calculations and round to the nearest dollar. I would recommend that you calculate the MOH per kitchen first.You should calculate an Overhead rate. Discuss other optionsfor the activity baseand the importance ofthe MOH allocation. Do multiple product lines impact the MOH allocation?

2.What are the variable costs for this product line? What are the fixed costs? I would recommend that you show a schedule for each areaon a yearly basis. For the variable costs, also, show them on a per unit(800 units) How does a company identify each type of cost? Can a cost classification be changed over time?If yes, explain how. If no, explain why?

3.What is the Contribution Margin(CM)in totalandper unitdollars, and CM%for the sale of 800 kitchen cabinets? Explain the importance of CM and how it can be used by companies to predict future income.Create some exampleswith numbersto show howit can be used.

4.Prepare traditional Income Statement assuming avolume of 800 units. For the cost of goods sold, please use theper unit cost you calculated in #1. You do not have to prepare any additional schedules.I would use a similar format to exhibit 16-8 on page 737or from your lecture notes. I recommend that you list out all operating expenses given above. Do not use just Selling and General/Administrative Expenses for your categories. Points will be lost by not listing out all period costs. You can ignore interestand income tax expense.

The discussion questions should be answered in the order listed(italics). However, do not number the questions. Instead, the discussion should flow from one topic to the next and include as a minimum the questions identified.Please use a memo format for the paper and address it to the Board of Directors

. The calculations should be included as scheduleswhich are numbered and referenced to each discussion. A discussion without referring to the numbers will not be considered complete. Do not discuss/explain your calculations. Answer the questions related to your calculations. All schedules should be included in exceland use formulas with professional formatting.

EXIHIBIT 16-8

EXIHIBIT 16-8

CONQUEST, INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2018

Sales $1,300,000

Cost of goods sold 782,000

Gross profit on sales $518,000

Operating expenses:

Selling expenses $ 135,000

General and administrative expenses265,000

Total operating expenses 400,000

Income from operations $118,000

Interest expense 18,000

Income before income taxes $100,000

Income taxes expense 30,000

Net income $70,000