Magnificent Modems, Inc. makes modem cards that are used in notebook computers. The company completed the following transactions during year 1. All purchases and sales were made with cash.

1. Acquired $750,000 of cash from the owners.

2. Purchased $270,000 of manufacturing equipment. The equipment has a $30,000 salvage value and a four-year useful life.

3. The company started and completed 5,000 modems. Direct materials purchased and used amounted to $40 per unit.

4. Direct labor costs amounted to $25 per unit.

5. The cost of manufacturing supplies used amounted to $4 per unit.

6. The company paid $50,000 to rent the manufacturing facility.

7. Magnificent sold all 5,000 units at a cash price of $120 per unit. (Hint: It will be necessary to determine the manufacturing costs in order to record the cost of goods sold.)

8. The sales staff was paid a $6 per unit sales commission.

9. Paid $39,000 to purchase equipment for administrative offices. The equipment was expected to have a $3,000 salvage value and a three-year useful life.

10. Administrative expenses consisting of office rental and salaries amounted to $71,950.

Required

1. Based on these data, identify each cost incurred by the company as (1) fixed versus variable relative to the number of units produced and sold; and (2) product versus selling, general, and administrative (SG&A). The solution for the first item is shown as an example.

2. Complete the following table to indicate the product cost per unit assuming levels of production of 5,000, 6,000, 7,000, and 8,000

Fixed cost Product cost Cost Item Depreciation on manufacturing equipment Direct materials Direct labor Manufacturing supplies Rent on manufacturing facility Sales commissions Depreciation on administrative equipment Administrative costs (rent and Salaries) Per Unit 5,000 6,000 7,000 8,000 Production Levels Variable cost Fixed cost $ 69 Total (Cost of goods sold) Cost per unit