Walton Modems, Inc. makes modem cards that are used in notebook computers. The c
ID: 2336623 • Letter: W
Question
Walton Modems, Inc. makes modem cards that are used in notebook computers. The company completed the following transactions during 2017. All purchases and sales were made with cash. 1) Acquired $840,000 of cash from the owners. 2) Purchased $450,000 of manufacturing equipment. The equipment has a $40,000 salvage value and a four-year useful life. Label the purchase of the equipment as Event 2a and the recognition of depreciation as Event 2b. 3) The company started and completed 7,000 modems. Direct materials purchased and used amounted to $58 per unit. 4) Direct labor costs amounted to $43 per unit. 5) The cost of manufacturing supplies used amounted to $8 per unit. 6) The company paid $68,000 to rent the manufacturing facility 7) Magnificent sold all 7,000 units at a cash price of $210 per unit. (Hint: It will be necessary to determine the manufacturing costs in order to record the cost of goods sold.) 8) The sales staff was paid a $7 per unit sales commission. 9) Paid S57,000 to purchase equipment for administrative offices. The equipment was expected to have a $4,800 salvage value and a three-year useful life. Label the purchase of the equipment as Event 9a and the recognition of depreciation as Event 9b 10) Administrative expenses consisting of office rental and salaries amounted to S74,650. Required a) Based on these data, identify each cost incurred by the company as (1) fixed versus variable relative to the number of units produced and sold; and (2) product versus selling, general, and administrative (SG&A). The solution for the first item is shown as an example b) Complete the question marks in the following table to indicate the product cost per unit assuming levels of production of 7,000, 8,000, 9,000, and 10,000Explanation / Answer
Req a: Fixed/Var Product/ SG &A Depreciation on Manufacturing Equipment Fixed cost Product Direct Material Variable Product Direct labour Variable Product Manufacturing Supplies Variable Product Rent on manufacturing Facility Fixed Product Sales commission Variable SG & A Depreciation on Admin Equipment Fixed SG & A Admin cost Fixed SG & A Total Variable cost per unit: Material 58 Labour 43 Supplies 8 Variable Product cost per unit 109 Total Fixed Product cost Depreciation 102500 Rent on mfg facility 68000 Total Fixed Product cost 170500 Product cost Per unit 7000 8000 9000 10000 Variable cost 109 763000 872000 981000 1090000 Fixed cost 170500 170500 170500 170500 Total (Cost of Goods sold) 933500 1042500 1151500 1260500 Cost per unit 133.36 130.31 127.94 126.05
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