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Laco Company acquired its factory building about 20 years ago. For several years, the company has rented out a small, unused part of the
Laco Company acquired its factory building about 20 years ago. For several years, the company has rented out a small, unused part of the building. The renter's lease will expire soon. Rather than renewing the lease, Laco Company is considering using the space itself to manufacture a new product. Under this option, the unused space will continue to be depreciated on a straight-line basis, as in past years. Direct materials and direct labour cost for the new product would be $50 per unit. In order to have a place to store finishec units of the new product, the company would have to rent a small warehouse nearby. The rental cost would be $2,000 per month. It would cost the company an additional $4,000 each month to advertise the new product. A new production supervisor would be hired to oversee production of the new product who would be paid $3,000 per month. The company would pay a sales commission of $10 for each unit of product that is sold. Required: Complete the chart below by placing an "X" under each column heading that helps to identify the costs listed to the left. There can be "X's" placed under more than one heading for a single cost. For example, a cost might be a product cost, an opportunity cost, and a sunk cost; there would be an "X" placed under each of these headings on the answer sheet opposite the cost. Opportunity Sunk Variable Fixed Product Cost Cost Cost Rent on unused factory spaceX Depreciation on the factory space Direct material and direct labour Rental cost of the small warehouse Advertising cost Production supervisor's salary Sales commissions X X Selling & Admin. Differential Cost Cost Cost Cost X X X X X X X XX X XXXXX
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The completed chart is provided below with explanations for each cost classification Cost Opportunity Cost Sunk Cost Variable Cost Fixed Cost Product Cost Selling Admin Cost Differential Cost Rent on ...Get Instant Access to Expert-Tailored Solutions
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