I just need help with Q 3

Stylish Chairs

Stylish Chairs is a small company which makes and sells copies of an 18th-century rococo chair. The company is managed by Benny, and you are an intern working at Stylish Chairs.

Question 2

Benny is reviewing the activities for the past year, 2021. Stylish Chairs rents a small administrative office in Melbourne's central business district (CBD) for $45,000 per year and a large warehouse in Geelong for $75,000 per year.

Stylish Chairs has a staff handling all the administrative work in the office in CBD and pays the staff with an annual salary of $75,000. Stylish Chairs has hired a professional marketing firm for managing the sales and this marketing firm charges a commission of $10 for each completed sale; each sale equals one chair sold. The invoicing system used by Stylish Chairs is outsourced and for each sale completed the outsourced firm charges $5; each sale equals one chair sold. The miscellaneous cost that incurred in the administrative office was $5,000, mostly costs with the lease of material and stationery, and this yearly cost is expected to remain the same amount for years to come.

In the warehouse in Geelong there is one full-time employee who gets paid $90,000 per year for supervising the casual staff working in the warehouse. The warehouse had miscellaneous costs of $5,000 in the past year and is expected to remain the same amount for years to come.

Stylish Chairs has a contract with a delivery firm for delivering the chair to their clients, but Benny is not able to find the contract and is not sure how much the delivery firm charges. The only information he can gather is regarding the past few years:

Table 1 - Annual unit delivery and costs

Year Delivery Cost Units Delivered

2017 $740 400

2018 $900 500

2019 $850 475

2020 $840 470

Below is a table listing all the material used during the past year to manufacture 500 chairs and the costs incurred. There was no stock or work in process in the beginning or end of the year.

Table 2 - Material costs

Material Quantity Total Cost

Fabric 1,000 m $1,000

Timber 6,000 Units $30,000

Foam 1,000 Kilograms $1,000

Button stud 5,000 Units $500

Varnish 1,000 Litres $25,000

Bolt 5,000 Units $1,000

The manufacturing activity is made by casual staff. The first stage is the woodworking, where a carpenter is hired by $30 per hour for working with the timber. This task is very labour intensive and for preparing the material a carpenter takes 4 hours per chair. Once the timber is ready for being assembled, a casual staff is paid $20 per hour for assembling the chair with the bolts and then adding the padding (fabric, foam, and button studs). The assembling takes only 2 hours per chair. The final stage of manufacturing is varnishing the chair. A casual staff is paid $25 per hour for varnishing the chair and this task takes 1 hour.

Required

a) Benny is having some trouble crunching the numbers and has asked for your help identifying and

classifying all the costs between (a) fixed, mixed, or variable, (b) direct or indirect, and (c) product cost

or period cost. Use a table for presenting the answer to this question, as format suggested below.

(Chapter 2, 10 marks)

Cost item Fixed, mixed, or variable cost Direct or indirect cost Product or period cost

[cost item #1]

[cost item #2]

[cost item #3]

[....]

b) Use the high-low method for estimating the cost function for annual delivery costs. (Chapter 9, 10

marks)

c) Benny is also having trouble and asked for your help in calculating the per unit product cost and cost of goods sold for the 500 chairs for the past year for Stylish Chairs. (Chapter 2, 10 marks)

Question 3

To have a better picture of what has happened during the previous year, Benny wants to figure out the operating profit for Stylish Chairs, and Benny has asked you to provide him with this information. The chairs are sold for $900 each. When preparing the income statements, please break down the information as much as you can. Keep in mind you are not preparing reports for financial accounting, so break down the cost items as much as possible.

Required

a) Make a variable-costing income statement for the previous year for Stylish Chairs. (e.g., Panel A,

Exhibit 7.3, Chapter 7, 5 marks)

b) Make an absorption-costing income statement for the previous year for Stylish Chairs. (e.g., Panel

B, Exhibit 7.3, Chapter 7, 5 marks)