Castro Company makes and sells a single product. Castro incurred the following c

Question

Castro Company makes and sells a single product. Castro incurred the following costs in its most recent fiscal year Cost Items Appearing on the Income Statement Materials cost ($9 per unit Company president's salary Depreciation on manufacturing equipment Shipping and handing ($0.50 per unit) Customer billing costs (1% of sales) Rental cost of manufacturing facility Advertising costs (5200,000 per year) Labor cost (S8 per unit) Sales commissions (1.50% of sales) Salaries of administrative personnel Depreciation on office furniture Manufacturing supplies (S0.25 per unit) Production supervisor's salary Castro could purchase the products that it currently makes. If it purchased the items, the company would continue to sell themm using its own logo, advertising program, and sales staff Required ldentify each cost as relevant or irrelevant to the outsourcing decision and indicate whether the cost is fixed or variable relative to the number of products manufactured and sold Materials cost ($9 per unit) Company president's salary Customer billing costs ( 1% of sales) Rental cost of manufacturing facility Advertising costs ($200,000 per year) Labor cost ($8 per unit Sales commissions (1 50% of sales) Salaries of administrative personnel Shipping and handling (SO.50 per unit) Depreciation on office furniture Manufacturing supplies ($0.25 per unit) Production supervisor's salary

Explanation / Answer

Materials cost ($9 per Unit) Relevant Variable Company president’s salary Irrelevant Fixed Depreciation on manufacturing equipment Irrelevant Fixed Customer billing costs (1% of sales) Irrelevant Variable Rental cost of manufacturing facility Relevant Fixed Advertising costs Irrelevant Fixed Labor cost ($6 per Unit) Relevant Variable Sales commissions (1.5% of sales) Irrelevant Variable Salaries of administrative personnel Irrelevant Fixed Shipping and handling ($0.5 per unit) Irrelevant Variable Depreciation on office furniture Irrelevant Fixed Manufacturing supplies ($0.25 per unit) Relevant Variable Production supervisor’s salary Relevant Fixed

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