1. The Jones Company acquired its factory building about 15 years ago. For several years the company has rented out a portion of the building. The company has received a rental income of $4,000 per year on this space. The renters lease will expire soon, and rather than renewing the lease, the company has decided to use the space itself to manufacture a new product.

Direct materials cost for the new product will total $90 per unit. To have a place to store finished units of product, the company will rent a small warehouse nearby. The rental cost will be $600 per month. In addition, the company must rent equipment for use in producing the new product; the rental cost will be $3,000 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $40 per unit. The space of the building that was rented previously will continue to be depreciated on a straight-line basis, as in prior years. This depreciation is $6,000 per year. Advertising costs for the new product will total $40,000 per year. A supervisor will be hired to oversee production; her salary will be $1,500 per month. Electricity for operating machines will be $1.50 per unit. Costs of shipping the new product to customers will be $9 per unit. Costs of packing the product will be $2.00 due the fragile nature of the product and the length of shipping times.

Required: On the following answer sheet place checks in the columns appropriate for each item.

			Product Cost _______________________________
Name of the Cost	Variable Cost	Fixed Cost	Direct Materials	Direct Labor	Manufacturing Overhead	Period (selling and administrative Costs	Opportunity Cost
$4,000 Rental Income
Direct Materials ($90)
Rent Space ($600)
Rent Equipment ($3,000)
Direct Labor ($40)
Depreciation ($6,000)
Adv Costs ($40,000)
Supervisor ($1,500)
Electricity ($1.50)/Unit
Shipping ($9.00) / Unit
Package Cost ($2.00)
Investments ($3,000)