You have a business that makes name tents for companies that are holding seminars and for which the participants in the seminars need to know each other's names.Your customers send you the names and your business makes the name tents.All name tents are made the same way.The only difference between the name tents is the name on the name tent.

Accordingly, you are a name tent manufacturer and your company makes the tents with pen and paper and no computers are involved.The factory for making the name tents is our classroom and you have 10 friends that are your employees.

Your business can make 100 name tents per hour or 1,000 name tents per day (10 hours per day is maximum time).The cost of paper is a penny per sheet and the cost of labor is $10 per hour.The cost to rent our classroom is $100 per working day (regardless of the number of tents produced or hours worked).A supervisor will provide the direction and supervision for $25 per working day (regardless of the number of tents produced).The supervisor's job is to ensure quality control of the name tents and to manage the workforce.The cost to make the ink for one thousand name tents is 10 pens with a cost of $1 for each pen.The cost to advertise your business is $100 for a month.The business works twenty 10 hour days per month and can make 1,000 name tents each day or 20,000 name tents per month.Name tents are sold for $1 per name tent.

If you make less than a thousand name tents in a day, please assume that resource usage is proportional.

Conceptual Questions:

What are product costs?

What are period costs?

What is the difference between a direct and indirect cost?

What is a cost driver?

What is a variable cost?

What is a fixed cost?

What is a cost equation?

Applied Questions:

Please determine the following cost categories for producing one thousand name tents per day (direct versus indirect, variable versus fixed, product versus period cost, cost type).Also, please determine the cost equation for each cost category where X equals the number of name tents and Y equals cost in dollars.

1)Paper

Direct versus Indirect

Fixed versus Variable

Product versus Period

Cost Type

Cost Equation

2)Employee Labor

Direct versus Indirect

Fixed versus Variable

Product versus Period

Cost Type

Cost Equation

3)Supervisor

Direct versus Indirect

Fixed versus Variable

Product versus Period

Cost Type

Cost Equation

4)Pens

Direct versus Indirect

Fixed versus Variable

Product versus Period

Cost Type

Cost Equation

5)Rent

Direct versus Indirect

Fixed versus Variable

Product versus Period

Cost Type

Cost Equation

6)Advertising

Direct versus Indirect

Fixed versus Variable

Product versus Period

Cost Type

Cost Equation

If Y is the cost of the name tents and X is the number of name tents made, how much do 100 name tents cost to produce?How much do 500 name tents cost to produce and how much do 1,000 name tents cost to produce?What is the unit cost (per name tent) at each level of production?

Daily Number of Name Tents Produced

PaperCost

$

Employee

Cost

$

Supervisor

Cost

$

Pen Cost

$

Rent Cost

$

Total Production Cost

$

Production Cost Per Name Tent

$/Unit

Equation

Cost Type

100

Name Tents

500 Name Tents

1,000

Name Tents

What is the production cost equation per name tent for one day?

Why does the unit cost decrease as production increases?

What is the production cost equation for name tents for one month?Remember that the cost of supervisors were expressed per day.

If selling costs are included, what is the total cost equation to make name tents in one month?

If you make and sell 20,000 name tents in a month, please compile a GAAP income statement showing your profitability in that month.

If you make and sell 20,000 name tents in a month, please compile a contribution margin income statement showing your profitability in that month.

Which income statement (GAAP or Contribution Margin) is more helpful to answer the following questions?

Questions:

1)If the number of name tents produced and sold changes to 21,000, then what is the impact on profits?

2)If the variable costs change to 23 cents per unit, what is the impact on profits?

3)If we want to make a target operating income (profit) of $22,800 in a month how many units do we need to produce and sell?

4)What is the production cost per unit?