10 Mark Question 2 to i manufacturing plant in order to have room for expansion

Question

10 Mark Question 2 to i manufacturing plant in order to have room for expansion when needed. Since the co had no immediate need for the extra space, it rented out the building to another comp Several years ago, Wallace Company purchased a small building adjacent for a rental revenue of $35,000 per year. The renter's lease will expire soon, and rather renewing the lease, Wallace Company has decided to use the building itself to man a new product. anufacture Direct materials cost for the new product will total $50 per unit. It will be necessary to hir a supervisor to oversee production. His salary will be S3,000 per month. Workers will be hired to manufacture the new product, with direct labour cost amounting to S22 per uni Manufacturing operations will occupy all of the building space, so it will be necessary to rest space to a warehouse nearby to store finished units of product. The rental cost will be $1,500 per month. In addition, the company will need to rent equipment for use in producing the new product: the rental cost will be S2,200 per month. The company will continge lo depreciate the building on a straight line basis, as in part years. Depreciation on the building is $7,000 per year Advertising costs for the new product will total S28,000 per year. Costs of shipping the sa product to customers will be $7 per unit. Electrical costs of operating machines will k 1 be S14 per unit. le ve l To have funds to purchase materials, meet payrolls, and so forth, the company will k nv, liquidate some temporary investments. These investments are yielding a retura per year Required: Complete the chart below by placing an "" under each heading that helps to cost involved. to ident There can be "X's" placed under more than one heading for a single cost. eplaced cost, eg, a cost i be a sunk cost, an overhead cost and a product cost; there wou each of these headings opposite the cost. ld

Explanation / Answer

Hi there !!

Before starting with this question, it is very important to understand the nature of different types of costs.

I'll explain you the various heads of cost, after which it will be very easy for us to classify them.

Now, i am sure you will be able to classify the different types of costs.

You may verify your answer from the below solution.

I hope the solution is clear to you and you are able to identify the different type of costs.

Do let me know if you have any queries.

All the best !! :)

1 The opportunity cost is also known as ‘transfer cost’ or ‘alternate cost’. It is cost of using any factor is what is currently forgone by using it. 2 Fixed costs are those costs which remain constant, irrespective of the level of output. These costs remain unchanged even if the output of the firm is nil. Fixed costs, therefore, are known as “Overhead Costs” 3 Direct material costs are those which are incurred to bring in the material for the manufacturing/ production. 4 Direct labour costs are those which are incurred on the labourer's which are engaged in the manufacturing / production of the goods. 5 Sunk Costs are the costs which can not be recovered. These costs are irrelvant to decision making. 6 A period cost is more closely associated with the passage of time.

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