Several years ago, Wallace Company purchased a small building adjacent to the manufacturing plant in order to have room for expansion when needed. Since the company had no immediate need for the extra space, if rented out the building to another company for a rental revenue of $35,000 per year. The renter's lease bill expire soon, end rather than renewing the lease, Wallace Company has decided to use the building itself to manufacture a new product. Direct materials cost for the new product will total $50 per unit. It will be necessary to hire a supervisor to eversee production. His salary will be $3,000 per month. Workers will be hired to manufacture the new product, with direct labour cost amounting to $22 per unit. Manufacturing operations will occupy all of the building space, so it will be necessary to rent space to a warehouse nearby to store finished units of product. The rental cost will be $1, 500 per month. In addition, the company will need to rent equipment for use in producing the new product: the rental cost will be $2, 200 per month. The company will continue to depreciate the building on a straight line basis, as is part years. Depreciation on the building is $7,000 per year Advertising costs for the new product will total $28,000 per year. Costs of shipping the new product to customers will be $7 per unit. Electrical costs of operating machines will be $14 per unit. To have funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are yielding a return of $5,000 per year Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "X's" placed under more than one heading for a single cost, e.g., a cost might be a sunk cost, an overhead cost and a product cost: there would be an "X" placed under each of these headings opposite the cost. Several years ago, Wallace Company purchased a small building adjacent to the manufacturing plant in order to have room for expansion when needed. Since the company had no immediate need for the extra space, if rented out the building to another company for a rental revenue of $35,000 per year. The renter's lease bill expire soon, end rather than renewing the lease, Wallace Company has decided to use the building itself to manufacture a new product. Direct materials cost for the new product will total $50 per unit. It will be necessary to hire a supervisor to eversee production. His salary will be $3,000 per month. Workers will be hired to manufacture the new product, with direct labour cost amounting to $22 per unit. Manufacturing operations will occupy all of the building space, so it will be necessary to rent space to a warehouse nearby to store finished units of product. The rental cost will be $1, 500 per month. In addition, the company will need to rent equipment for use in producing the new product: the rental cost will be $2, 200 per month. The company will continue to depreciate the building on a straight line basis, as is part years. Depreciation on the building is $7,000 per year Advertising costs for the new product will total $28,000 per year. Costs of shipping the new product to customers will be $7 per unit. Electrical costs of operating machines will be $14 per unit. To have funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are yielding a return of $5,000 per year Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "X's" placed under more than one heading for a single cost, e.g., a cost might be a sunk cost, an overhead cost and a product cost: there would be an "X" placed under each of these headings opposite the cost
