might be justification 1 l and still be selling "at cost"? PROBLEM 2-20 Classifcation of Various Costs [LO2, LO3, L Staci Valek began dabbli it has been popular ing in pottery several years ago as a hobby. Her work is quite creative, and ein so popular with friends and others that she has decided to quit her job with an aerospace ll time. The salary from Staci's acrospace job is $3,800 per company and manufacture pottery fu 00 per month. She estimates that the cost of clay and glaze will be $2 for each produce the pottery at a labor rate of S8 per pot. Staci will rent a s mall building near her home to use as a place for manufacturing the pottery The rent will be $5 finished piece of pottery. She will hire workers To sell her pots, Stac tates that it will handle all advertising for to a fee of $600 per month. Staci's brother will sell the he i feels that she must advertise heavily in the local area. An advertising agency will be paid a commission of $4 for each pot sold. Equipment needed to manufacture tl pots will be rented at a cost of $300 per montih Staci has already paid the legal and filing fees associated with incorporating her business in small room has been located in a tourist area that Staci d in the room for taking These fees amounted to $500. A the state. will use as a sales office. The rent will be $250 per month. orders will cost $40 per month. taking after-hours messages. A phone installe In addition, a recording device will be attached to the phone for Staci has some money in savings that is earning interest of $1,200 per year. These savings w be withdrawn and used to get the business going. For the time being, Staci does not intend to draw any salary from the new company Required: 1. Prepare an answer sheet with the following column headings: Period (Selling and Cost Name Product Cost the Varable. Fixed Drect Direct Manufacturing Administrative) Opportunity Sunk Cost Cost Cost Materials Labor Overhead Cost Cost List the different costs associated with the new company down the extreme left column (undr Name of the Cost). Then place an X under each heading that helps to describe the type of cost ved. There may be X's under several column headings for a single cost. (That is, fixed cost, a period cost, and a sunk cost: you would place an X under each of thes the Variable Cost column, list only those costs that would be variable with rese column headings opposite the cost.) to the number of units of pottery that are produced and sold. 2. All of the costs you have listed above, except one, would be differential costs between tic aci producing potery or staying with the aerospace company, Which co differential? Explain
