Laco Company acquired its factory building about 20 years ago. For a number of years the company has rented out an unused part of the building. The renters lease will expire soon. Rather than renewing the lease, Laco Company is considering using the space itself to expand operations and meet demand. Under this option the unused space will continue to be depreciated on a straight-line basis as in past years.

The companys product requires direct materials that cost 25 AED per unit. The company employs a production supervisor whose salary is 2,000 AED per month. Production line workers are paid 15 AED per hour to manufacture and assemble the product. The company rents the equipment needed to produce the product at a rental cost of 1,500 AED per month. Additional equipment will be needed as production is expanded and the monthly rental charge for this equipment will be 900 AED per month. The building is depreciated on the straight-line basis at 9,000 AED per year.

The company spends 40,000 AED per year for advertising. Shipping costs for each unit are 20 AED per unit. The cost of electricity and other utilities used for product is 2 AED per unit.

The company plans to liquidate several investments in order to expand production. These investments currently earn a return of 12,000 AED per year.

INSTRUCTIONS:

Complete the answer sheet that follows by placing an x under each heading that identifies the cost involved. The xs can be placed under more than one heading for a single cost, eg. A cost might be an overhead cost, and a fixed cost. An x can thus be placed under each of these headings opposite the cost.

Cost Behavio Product Costs Fixed Cost Variable Cost DirectDirectMfg. OverheadSelling/Opportunity Materials Labor Name of Cost Marketing Cost 1.Amount that can be earned renting buildin 2.Cost of direct materials per unit 3.Salary of production 4.Cost of direct labor per unit 5.Equipment rental 6.Depreciation on buildin 7.Marketing costs 8.Shipping costs per unit of production 9.Electrical and other costs per unit 10 Foregone investment income