order to have room for expansion when needed. Since the company had no immediate

Question

order to have room for expansion when needed. Since the company had no immediate need for the extra building itself to manufacture a new product. per Advertising costs for the new product will total $28,000 per year. Costs of shipping the new product to customers will be $7 per unit. Electrical costs of operating machines will be $4 per unit. 2 To have funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are yielding a return of $5,000 per year Listed below are different costs associated with the new product decision. Choose Yes or No under each heading that helps to describe the type of cost involved Period (Selling and Opportunity Sunk 6 Direct Manufacturing Administrative) Cost 5 Rental revenue forgone, $35,000 per year Direct materials cost, $50 per unit Supervisor's salary, $3,000 per month Direct labour cost, $22 per unit Rental cost of warehouse, $1,500 per month Rental cost of equipment, $2,200 per month Depreciation of the building, $7,000 per year Return earned on investments, $5,000 per year

Explanation / Answer

Solution:

Name of the Cost Variable Cost Fixed Cost Product Cost Period (Selling & Administrative Cost) Opportunity Cost Sunk Cost Direct Materials Direct Labors Manufacturing Overhead Rental Revenue Forgone, $35,000 per year No Yes No No No No Yes No Direct Material Cost, $50 per unit Yes No Yes No No No No No Supervisor's Salary, $3,000 per month No Yes No No Yes No No No Direct Labor Cost, $22 per unit Yes No No Yes No No No No Rental Cost of Warehouse, $1,500 per month No Yes No No No Yes No No Rental Cost of equipment, $2,200 per month No Yes No No Yes No No No Depreciation for building, $7,000 per year No Yes No No Yes No No Yes Advertising Cost, $28,000 per year No Yes No No No Yes No No Shipping Cost, $7 per unit Yes No No No No Yes No No Electrical Cost, $4 per unit Yes No No No Yes No No No Return earned on investment, $5,000 per year No Yes No No No No Yes No

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