Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building 10 years ago. For several years, the company hasrented out a small annex attached to the rear of the building for $30,000 per year. The renter's lease will expire soon, and rather thanrenewing the lease, the company has decided to use the annex to manufacture a new product.Direct materials cost for the new product will total $80 per unit. To have a place to store its finished goods, the company will rent asmall warehouse for $500 per month. In addition, the company must rent equipment for $4,000 per month to produce the newproduct. Direct laborers willI be hired and paid $60 per unit to manufacture the new product. As in prior years, the space in the annexwill continue to be depreciated at $8,000 per year.The annual advertising cost for the new product will be $50,000. A supervisor will be hired and paid $3,500 per month to overseeproduction. Electricity for operating machines will be $1.20 per unit. The cost of shipping the new product to customers will be $9 perunit.To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments.These investments are presently yielding a return of $3,000 per year.Required:Using the table shown below, describe each of the costs associated with the new product decision in four ways. In terms of costclassifications for predicting cost behavior (column 2), indicate whether the cost is fixed or variable. With respect to cost classificationsfor manufacturers (column 3), if the item is a manufacturing cost, indicate whether it is direct materials, direct labor, or manufacturingoverhead. If it is a nonmanufacturing cost, then select "none" as your answer. With respect to cost classifications for preparing financialstatements (column 4), indicate whether the item is a product cost or period cost. Finally, in terms of cost classifications for decisionmaking (column 5), identify any items that are sunk costs or opportunity costs. If you identify an item as an opportunity cost, then select“none" as your answer in columns 2-4.Cost Classifications for:Predicting CostBehaviorPreparingFinancialStatementsName of the CostManufacturersDecision MakingRental revenue forgone, $30,000 per yearDirect materials cost, $80 per unitRental cost of warehouse, $500 per monthRental cost of equipment, $4,000 per monthDirect labor cost, $60 per unitDepreciation of the annex space, $8,000 per yearAdvertising cost, $50,000 per yearSupervisor's salary, $3,500 per monthElectricity for machines, $1.20 per unitShipping cost, $9 per unitReturn earned on investments, $3,000 per year Milden Company is a merchandiser that plans to sell 37,000 units during the next quarter at a selling price of $61 per unit. Thecompany also gathered the following cost estimates for the next quarter:CostCost Formula$31 per unit sold$181,000 per quarter6% of salesCost of good soldAdvertising expenseSales commissionsShipping expenseAdministrative salariesInsurance expenseDepreciation expense$63,000 per quarter + $4.00 per unit sold$91,000 per quarter$10,100 per quarter$61,000 per quarterRequired:1. Prepare a contribution format income statement for the next quarter.2. Prepare a traditional format income statement for the next quarter.Complete this question by entering your answers in the tabs below.Required 1Required 2Prepare a contribution format income statement for the next quarter.Milden CompanyContribution Format Income StatementFor the Next QuarterVariable expenses:Total variable expensesContribution marginFixed expenses:Total fixed expensesRequired 1Required 2 >

Cost Classification for S no Name of…

ewing the lease, the company has decided to use the annex to manufacture a new product. ct materials cost for the new product will total $80 per unit. To have a place to store its finished goods, the company will rent a Il warehouse for $500 per month. In addition, the company must rent equipment for $4,000 per month to produce the new duct. Direct laborers will be hired and paid $60 per unit to manufacture the new product. As in prior years, the space in the annex continue to be depreciated at $8,000 per year. annual advertising cost for the new product will be $50,000. A supervisor will be hired and paid $3,500 per month to oversee duction. Electricity for operating machines will be $1.20 per unit. The cost of shipping the new product to customers will be $9 per rovide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. se investments are presently yielding a return of $3,000 per year. uired: g the table shown below, describe each of the costs associated with the new product decision in four ways. In terms of cost sifications for predicting cost behavior (column 2), indicate whether the cost is fixed or variable. With respect to cost classifications

ewing the lease, the company has decided to use the annex to manufacture a new product. ct materials cost for the new product will total $80 per unit. To have a place to store its finished goods, the company will rent a Il warehouse for $500 per month. In addition, the company must rent equipment for $4,000 per month to produce the new duct. Direct laborers will be hired and paid $60 per unit to manufacture the new product. As in prior years, the space in the annex continue to be depreciated at $8,000 per year. annual advertising cost for the new product will be $50,000. A supervisor will be hired and paid $3,500 per month to oversee duction. Electricity for operating machines will be $1.20 per unit. The cost of shipping the new product to customers will be $9 per rovide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. se investments are presently yielding a return of $3,000 per year. uired: g the table shown below, describe each of the costs associated with the new product decision in four ways. In terms of cost sifications for predicting cost behavior (column 2), indicate whether the cost is fixed or variable. With respect to cost classifications

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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