Jump Up Inc. of Reno, Nevada, acquired its factory building about 10 years ago.

Question

Jump Up Inc. of Reno, Nevada, acquired its factory building about 10 years ago. For several years the company has rented out a small annex attached to the rear of the building. The company has received a rental income of $30,000 per year on this space. The renter's lease will expire soon, and rather than renewing the lease, the company has decided to use the space itself to manufacture a new product. Direct materials cost for the new product will total $80 per unit. To have a place to store finished units of product, the company will rent a small warehouse nearby. The rental cost will be $500 per month. In addition, the company must rent equipment for use in producing the new product; the rental cost will be $4,000 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $60 per unit. The space in the annex will continue to be depreciated on a straight-line basis, as in prior years. This depreciation is $8,000 per year. Advertising costs for the new product will total $50,000 per year. A supervisor will be hired to oversee production; her salary will be $1,500 per month. Electricity for operating machines will be $1.20 per unit. Costs of shipping the new product to customers will be $9 per unit. REQUIRED: List the different costs associated with the new product under "Name of the Cost." Then place an X under each heading that helps to describe the type of cost involved. There may be Xs under several column headings for a single cost. (For example, a cost may be a fixed cost and manufacturing overhead; you would place an X under each of these column headings opposite the cost.) The direct materials cost is shown below as an example. Name of the cost Variable cost Fixed Cost Direct Materials Direct Labor Mfg. Overhead Period (selling & Admin Cost) Materials of Product X X Jump Up Inc. of Reno, Nevada, acquired its factory building about 10 years ago. For several years the company has rented out a small annex attached to the rear of the building. The company has received a rental income of $30,000 per year on this space. The renter's lease will expire soon, and rather than renewing the lease, the company has decided to use the space itself to manufacture a new product. Direct materials cost for the new product will total $80 per unit. To have a place to store finished units of product, the company will rent a small warehouse nearby. The rental cost will be $500 per month. In addition, the company must rent equipment for use in producing the new product; the rental cost will be $4,000 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $60 per unit. The space in the annex will continue to be depreciated on a straight-line basis, as in prior years. This depreciation is $8,000 per year. Advertising costs for the new product will total $50,000 per year. A supervisor will be hired to oversee production; her salary will be $1,500 per month. Electricity for operating machines will be $1.20 per unit. Costs of shipping the new product to customers will be $9 per unit. REQUIRED: List the different costs associated with the new product under "Name of the Cost." Then place an X under each heading that helps to describe the type of cost involved. There may be Xs under several column headings for a single cost. (For example, a cost may be a fixed cost and manufacturing overhead; you would place an X under each of these column headings opposite the cost.) The direct materials cost is shown below as an example.

Explanation / Answer

Name of the cost Variable cost Fixed Cost Direct Materials Direct Labor Mfg. Overhead Period (selling & Admin Cost) Materials of Product X X Rent for finished goods Warehouse X X Equipment Rental cost X X Direct Labor cost X X Depreciation of Annex X X Advertsing Cost X X Salary of Production Supervisor X X Electricty cost for operating machines X X Cost of Shipping X X

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