OBJECTIVE 12 Problem 2-31 Cost Identification and Analysis, Cost Assignment, Income Statement Peter Kanakarian has decided to open a printing shop. He has secured two contracts: (1) a five- year contract to print a popular regional magazine (5,000 copies each month), and (2) a three-year agreement to print tourist brochures for the province (10,000 brochures per month). Peter has rented a building for $1,400 per month. His printing equipment was purchased for $40,000 and has a life expectancy of 20,000 hours with no salvage value. Depreciation is assigned to a period based on the hours of usage. Peter has scheduled the delivery of the products so that two production runs are needed. In the first run, the equipment is prepared for the magazine printing. In the second run, the equipment is reconfigured for brochure printing. It takes twice as long to configure the equipment for the magazine setup as it does for the brochure setup. The total setup costs per month are S600. Insurance costs for the building and equipment are $140 per month. Power to operate the printing equipment is strongly related to machine usage. The printing equipment causes virtually all the power costs. Power costs will run $350 per month. Printing materials will cost S0.40 per copy for the magazine and S0.08 per copy for the brochure. Peter will hire workers to run the presses as needed (part-time workers are easy to hire). He must pay $10 per hour. Each worker can produce 20 copies of the magazine per printing hour or 100 copies of the brochure. Distribution costs are $500 per month. Peter will receive a salary of S1,500 per month. He is responsible for personnel, accounting, sales, and productionin effect, he is responsible for administering all aspects of the business. Required: 1. What are the total monthly manufacturing costs? 2. What are the total monthly prime costs? Total monthly prime costs for the regional magazine? For the brochure? What are the total monthly conversion costs? Suppose Peter wants to determine monthly con- version costs for each product. Assign monthly conversion costs to each product using direct Check figures: tracing and relationship tracing whenever possible. For those costs that cannot be assigned 2. Magazine total prim using a tracing approach, you may assign them using direct labour hours. costs = $4,500 4. Peter receives $1.80 per copy of the magazine and S0.45 per brochure. Prepare an income 4. Income before taxes statement for the first month of operations. = $2,010