Thomas planned to set up a business that build custom house for high net-worth customers in Upstate NY on January 1^st, 2023. He would borrow $1,500,000 from a bank to invest in the business as star-up capital and receive a minimum salary of $5,000/month.

Here is the list of some related items or products that he would need to start the

business:

• Lumber
• Roof
• Concrete
• Insulation
• Ducting
• Paint
• Corporate office building

He needs to hire you as an accountant to help his financial and accounting work, and one supervisor who is in charge of the supervision of building custom houses. His business' cost drivers are provided in Table 1.

Question 1.1 - Cost Classification (15 points)

Required: Thomas needs your help in classifying the various costs. In order to manage these costs, he wants them identified using the information below. He asked that you use Table 2 (page 3) for your answers.

a) Behavior: fixed or variable cost

b) Traceability: direct or indirect

c) Financial reporting: product or period

d) If product cost, identify which items are direct materials, direct labor or

manufacturing overhead.

Question 1.2 - Costing Systems (15 points)

Thomas discussed the business plan with you. He was told that there are three different types of costing systems that exist in organizations - job order, process costing and activity based costing.

Required: Which type of costing system is his business most likely to use? Explain?

Items	Cost
Corporate office building	$45,000 (depreciated over 15 years on a straight line basis- no salvage value)
Equipment used to build various custom house	$30,000 (depreciated over 1o years on a straight line basis- no salvage value)
Lumber	$30 per square foot
Roof	$9 per square foot
Concrete	$3.25 per square foot
Insulation	$1.50 per square foot
Ducting	$55 per linear foot
Paint	$150per square foot
Utilities for office (include gas, electric and water)	$300 per month
Mobile phone (business)	$400 per month
Accountant salary	$3,000 per month
Supervisor salary	$5,000 per month
Salary of home assembly workers	$10 per hour
Estimated MOH	37,000 per month

Cost Classification Fixed Variable Direct Indirect Product DM DL MOH Period Corporate office building depreciation Deprediation of Equipment used to build various custom houses Lumber Roof Concrete Insulation Ducting Paint Utilities for office (include gas, electric, and water) Mobile phone (business) Accountant salary Supervisor salary Thomas' salary Salary of home assembly workers