Cycle Business manufactures and sells road and mountain bikes through a network

Question

Cycle Business manufactures and sells road and mountain bikes through a network of retail outlets in western Canada. Below is a partial list of expense items incurred in the most recent month (November), when 1,150 bicycles were manufactured, shipped, and sold. There was no beginning or ending work in process or finished goods inventory in November October Item Units produced and sold Sales 1,050 1,150 Leather used for the bicycle seats Production manager's salary Life insurance for the company president Electricity used in the production facilities Sales commissions Internet advertising Employee benefits for the production workers Property taxes on the production facilities Shipping costs Salary of the chief financial officer S1,050,000 1,150,000 40,250 6,750 275 1,325 51,800 1,300 36,800 1,750 51,800 11,500 36,750 6,750 275 1,225 46,500 1,300 33,600 1,750 46,500 11,500 Each month, regardless of how much electricity is used, Cycle Business pays a $175 base charge to the utilities company Employee benefits total 20% of the wages paid to production workers, who on average earn $20 per hour. Each bicycle requires 8 hours of direct labour. Required 1. With respect to the partial list of November expenses Use the Type column to label each item as a Manufacturing, Administrative, or Selling cost. b. a. For those items you labeled as a Manufacturing cost, i. Use the Behaviour column to label each item as variable or fixed manufacturing costs ii. Use the Direct/lndirect column to label each item as a direct or indirect cost. Item ype Behaviour Direct/lndirect Leather used for the bicycle seats Production manager's salary Life insurance for the company president Electricity used in the production facilities Sales commissions Internet advertising Employee benefits for the production workers Property taxes on the production facilities Shipping costs salary o the chier tinancial otticer Manufacturing Manufacturing Administrative Manufacturing riable Fixed Indirect riable/fxed ndirect ellin ellin Manufacturing Manufacturing riable Indirect Fixed Indirect ellin Administrative 2. Assume that 1,350 bicycles will be manufactured and sold in December. For the items you classified as manufacturing costs in requirement 1, estimate the cost for December. Assume that there will be no change in unit costs for any direct materials, houry wages will remain the same, and employee benefits will continue at 20% of wages Cost

Explanation / Answer

Cost: 235050

A Type Behavior Direct/Indirect Leather Manufacturing Variable Direct Prod manager salary Manufacturing Fixed Indirect Life Insurance Admin Fixed Indirect Electricity Manufacturing Variable/Fixed Indirect Sales Selling Variable Indirect Internet Ad Selling Fixed Indirect Employee benefit Manufacturing Variable Indirect Property tax Manufacturing Fixed Indirect Shipping cost Selling Variable Indirect Salary if Fin controller Admin Fixed Indirect B Oct Behavior Direct/Indirect Units 1050 1150 1350 Sales 1050000 1150000 1350000 Per unit 1000 35 Leather 36750 40250 47250 Per unit 35 Prod manager salary 6750 6750 6750 Fixed Life Insurance 275 275 275 Fixed 1050 Electricity 1225 1325 1525 (1350+175) 0.044286 Sales 46500 51800 60750 Rate/sales 0.045 Internet Ad 1300 1300 1300 Fixed 32 Employee benefit 33600 36800 43200 Per unit 32 Property tax 1750 1750 1750 Fixed Shipping cost 46500 51800 60750 Salary if Fin controller 11500 11500 11500 Fixed Total cost 186150 203550 235050 Profit 863850 946450 1114950

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