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 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 ($0.50 per unit) Depreciation on office furniture Manufacturing supplies ($0.25 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 them 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 Cost Items Relevance Behavior Materials cost ($9 per unit) Company president's salary Depreciation on manufacturing equipment 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 (S0.50 per unit) Depreciation on office furniture Manufacturing supplies (S0.25 per unit) Production supervisor's salary

Explanation / Answer

Relavent costs = Costs associated with the decision to manufacture which are variable costs, avoidable fixed costs and oppotunity cost lo lost revenue.

Fixed costs = Fixed in nature irrespective of the number of units produced.

Variable costs = Increases with the increase in production.

Cost items Realvence Behaviour Materials cost ($9 per unit) Relavent Variable cost Company president's salary Irrelavent Fixed cost Depreciation on manufacturing equipment Irrelavent Fixed cost Customer billing costs (1% of sales) Irrelavent variable cost Rental cost of manufacturing facility Relavent Fixed cost Advertising costs ($200,000 per year) Irrelavent Fixed cost Labour cost ($8 per unit) Relavent Variable cost Sales commissions (1.50% of sales) Irrelavent Variable cost Salaries of administrative personnel Irrelavent Fixed cost Shipping and handiling ($0.50 per unit) Irrelavent variable cost Depreciation on office furniture Irrelavent Fixed cost Manufacturing supplies ($0.25 per unit) Relavent Variable cost Production supervisor's salary Relavent Fixed cost

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.