Cycle Business manufactures and sells road and mountain bikes through a network
ID: 2487395 • Letter: C
Question
Cycle Business manufactures and sells road and mountain bikes through a network of retail outlets in western Canada. Below is a partial list of expense items incurred in the most recent month (November), when 1,140 bicycles were manufactured, shipped, and sold. There was no beginning or ending work in process or finished goods inventory in November:
Use the Behaviour column to label each item as variable or fixed manufacturing costs.
Use the Direct/Indirect column to label each item as a direct or indirect cost.
Assume that 1,340 bicycles will be manufactured and sold in December. For the items you classified as manufacturing costs in requirement 1, estimate the cost for December. Assume that there will be no change in unit costs for any direct materials, hourly wages will remain the same, and employee benefits will continue at 20% of wages.
Item October November Units produced and sold 1,040 1,140 Sales $ 1,040,000 $ 1,140,000 Leather used for the bicycle seats 35,360 38,760 Production manager’s salary 6,700 6,700 Life insurance for the company president 270 270 Electricity used in the production facilities* 5,370 5,870 Sales commissions 46,400 51,680 Internet advertising 1,200 1,200 Employee benefits for the production workers 29,120 31,920 Property taxes on the production facilities 1,700 1,700 Shipping costs 46,400 51,680 Salary of the chief financial officer 11,400 11,400 *Each month, regardless of how much electricity is used, Cycle Business pays a $170 base charge to the utilities company. Employee benefits total 20% of the wages paid to production workers, who on average earn $20 per hour. Each bicycle requires 7 hours of direct labour.Explanation / Answer
Item October November December Item Type Behaviour Direct/Indirect Units produced and sold 1,040 1,140 1340 Leather used for bicycle seats Manufacturing Variable Direct Sales $ 1,040,000 $ 1,140,000 Production managers salary Manufacturing Fixed Indirect Leather used for the bicycle seats 35,360 34 38,760 34 45560 life insurance for the companys president Administrative Production manager’s salary 6,700 6,700 6700 electricity used in production facilities Manufacturing Variable Direct Life insurance for the company president 270 270 sales commissions Selling cost Electricity used in the production facilities* 5,370 5,870 6870 internet advertising Selling cost Sales commissions 46,400 51,680 employee benefits for the production workers Manufacturing Variable Indirect Internet advertising 1,200 1,200 property taxes on the production facilities Manufacturing Fixed Indirect Employee benefits for the production workers 29,120 31,920 37520 shipping costs Selling cost Property taxes on the production facilities 1,700 1,700 1700 salary of the chief financial officer Administrative Shipping costs 46,400 51,680 Salary of the chief financial officer 11,400 11,400 *Each month, regardless of how much electricity is used, Cycle Business pays a $170 base charge to the utilities company. Employee benefits total 20% of the wages paid to production workers, who on average earn $20 per hour. Each bicycle requires 7 hours of direct labour.
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