Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

HW LO 26 27 a EXERCISE 2-12 Cost Classification [LO 2-2, LO 2-3, LO 2-4, LO 2-7] Wollogong Group Ltd. of New South Wales,

image text in transcribed

HW LO 26 27 a EXERCISE 2-12 Cost Classification [LO 2-2, LO 2-3, LO 2-4, LO 2-7] Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building about 10 years ago. For several years, the company has rented out a small annex attached to the rear of the build- ing. The company has received a rental income of $30,000 per year on this space. The renter's lease will expire soon, and rather than renewing the lease, the company has decided to use the space itself to manufacture a new product. Direct materials cost for the new product will total $80 per unit. To have a place to store finished units of product, the company will rent a small warehouse nearby. The rental cost will be $500 per month. In addition, the company must rent equipment for use in producing the new product; the rental cost will be $4,000 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $60 per unit. The space in the annex will continue to be depreciated on a straight-line basis, as in prior years. This depreciation is $8,000 per year. Advertising costs for the new product will total $50,000 per year. A supervisor will be hired to oversee production; her salary will be $1,500 per month. Electricity for operating machines will be $1.20 per unit. Costs of shipping the new product to customers will be $9 per unit. To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are presently yielding a return of about $3,000 per year. Required: Prepare an answer sheet with the following column headings: Product Cost Name of the Cost Variable Cost Fixed Cost Direct Materials Direct Labor Manufacturing Overhead Period (Selling and Administrative) Cost Opportunity Sunk Cost Cost List the different costs associated with the new product decision down the extreme left col- umn (under Name of the 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. (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.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Cost Accounting

Authors: William Lanen, Shannon Anderson, Michael Maher

5th edition

978-1259728877, 1259728870, 978-1259565403

More Books

Students also viewed these Accounting questions