Question 3: (16 marks) 1. Highland Chair Company is considering the launch of a new ergonomic chair. The following is a summary of their plans: Highland acquired its factory building about 20 years ago. For several years, the company has rented out a small, unused part of the building. They would now use this space for the production for the new chair. The renter's lease of $2,000 a month will expire soon and would not be renewed. As in past years, the unused space will continue to be depreciated on a straight-line basis. The plastic pellets (direct materials) and employee's wages (direct labour cost) for the new product would be $50 per unit. In order to have a place to store finished chairs, 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 chairs who would be paid $3,000 per month. The company would pay a sales commission of $10 for each chair that is sold. Instructions: 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. (16 marks) Opportunity Cost Sunk Cost Variable Cost Fixed Cost Product Cost Selling Admin Cost 4. The Cabinet Shop is a manufacturer of a specialty cabinets used in automobile assembly plants. During the first quarter the company produced and sold 2,500 units and had total variable costs of $300,000 and total fixed costs $400,000. The sell price per unit is $350. The company has a relevant range of 2,000 to 3,000 units. Instructions: a) Compete the schedule below for the company's total costs and unit costs. (6 Marks) The Cabinet Shop Cost Summary Units Sold (Sell Price per unit = $350) 12,500 3,000 Variable Cost Total Fixed Cost Total $300.000 $250.000 Variable Cost per Unit Fixed Cost per Unit b) In the second quarter the company expects to produce and sell 3,000 units. Prepare an income statement for the second quarter, using the contribution approach. (5 marks) The Cabinet Shop Income Statement-(Contribution Method) For the Second Quarter of Current Year