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Scenario
Several years ago, Carlson Manufacturing moved to a larger production facility to accommodate its growing business. Instead of selling their old facility, they rented it to another firm and have been receiving rental income from the tenant. The tenant’s lease is getting ready to expire but instead of renewing the lease, Carlson has decided to take the building back and use it to manufacture a new product. Carlson will continue to
Assignment
You have been asked by management to classify the costs associated with the start-up of this new product line. Using the cost information provided below, classify each cost under the appropriate heading according to the chart provided below. Note that some costs may be classified under more than one heading. For example, a cost may be a fixed cost and a period cost.
You will need to recreate the chart headings and columns shown below on your answer sheet.
|
Name of cost |
Variable Cost |
Fixed Cost |
Direct Materials |
Direct Labor |
Factory |
Period Cost |
Prime Cost |
Conversion Cost |
Carlson “New Product” Cost Information
|
Cost |
Amount |
|
Depreciation on Building (annual) |
$ 10,000 |
|
Direct Labor Cost (per unit) |
$ 75 |
|
Direct Materials Cost (per unit) |
$ 60 |
|
Factory Utilities (per unit) |
$ 8 |
|
Indirect Materials (per unit) |
$ 4 |
|
Interest on Investments (annual) |
$3,000 |
|
Machinery Rental (monthly) |
$ 6,000 |
|
Marketing (annual) |
$ 35,000 |
|
Rent from Tenant (annual) |
$40,000 |
|
Shipping (per unit) |
$3 |
|
Storage Facility (monthly) |
$700 |
|
Supervisor Salary (annual) |
$30,00 |
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