Exerclse 1-14 Cost Classiflcatlon [LO1-2, L01-3, LO1-4, LO1-5] Wollogong Group Ltd. of New South Wales, Australia, acquired Its factory building 10 years ago. For several years, the company has rented out a small annex attached to the rear of the bullding for $30,000 per year. The renter's lease will explre soon, and rather than renewing the lease, the company has decided to use the annex to manufacture a new product. Direct materlals cost for the new product will total $80 per unit. To have a place to store Its finlshed goods, the company will rent a small warehouse for $500 per month. In addition, the company must rent equlpment for $4,000 per month to produce the new product. Direct laborers will be hlred and pald $60 per unlt to manufacture the new product. As In prior years, the space In the annex will continue to be depreclated at $8,000 per year. The annual advertising cost for the new product will be $50,000. A supervisor will be hlred and pald $3,500 per month to oversee production. Electricity for operating machines will be $1.20 per unlt. The cost of shipping the new product to customers will be $9 per To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These Investments are presently ylelding a return of $3,000 per year. Using the table shown below, describe each of the costs assoclated with the new product decislon In four ways. In terms of cost classlfications for predicting cost behavlor (column 2), Indicate whether the cost is fixed or varlable. With respect to cost classlfications for manufacturers (column 3), If the Item is a manufacturing cost, Indicate whether It Is direct materlals, direct labor, or manufacturing overhead. If It Is a nonmanufacturing cost, then select "none" as your answer. With respect to cost classlfications for preparing financial statements (column 4), Indicate whether the item Is a product cost or perlod cost. Finally, In terms of cost classifications for decislon making (column 5). Identify any items that are sunk costs or opportunity costs. If you Identify an ltem as an opportunity cost, then select none" as your answer In columns 2-4. Name of the Cost Financial Decision Making Rental revenue forgone, $30,000 per year Direct materials cost, $80 per unit Rental cost of warehouse, $500 per month Rental cost of equipment, $4,000 per month Direct labor cost, $80 per unit Depreciation of the annex space, 58,000 per year Advertising cost, 550,000 per year Supervisor's salary, 53,500 per month Electricity for machines, 51.20 per unit Shipping cost, 58 per unit Return earned on investments, 53,000 per year