Melissa Vassar has decided to open a printing shop. She has secured two contracts. One is a5-year contract to print a popular regional magazine. This contract calls for 5,000 copies eachmonth. The second contract is a 3-year agreement to print tourist brochures for the state. Thestate tourist office requires 10,000 brochures per month.Melissa has rented a building for $1,400 per month. Her printing equipment was purchasedfor $40,000 and has a life expectancy of 20,000 hours with no salvage value. Depreciation is assigned to a period based on the hours of usage. Melissa has scheduled the delivery of the products so that two production runs are needed. In the first run, the equipment is prepared for themagazine printing. In the second run, the equipment is reconfigured for brochure printing. Ittakes twice as long to configure the equipment for the magazine setup as it does for the brochuresetup. The total setup costs per month are $600.Insurance costs for the building and equipment are $140 per month. Power to operate theprinting equipment is strongly related to machine usage. The printing equipment causes virtually all the power costs. Power costs will run $350 per month. Printing materials will cost $0.40per copy for the magazine and $0.08 per copy for the brochure. Melissa will hire workers torun the presses as needed (part-time workers are easy to hire). She must pay $10 per hour. Eachworker can produce 20 copies of the magazine per printing hour or 100 copies of the brochure.Distribution costs are $500 per month. Melissa will receive a salary of $1,500 per month. Sheis responsible for personnel, accounting, sales, and production—in effect, she is responsible foradministering all aspects of the business. Required:1. What are the total monthly manufacturing costs?2. What are the total monthly prime costs? What are the total monthly prime costs for theregional magazine? For the brochure?3. What are the total monthly conversion costs? Suppose Melissa wants to determinemonthly conversion costs for each product. Assign monthly conversion costs to eachproduct using direct tracing and driver tracing whenever possible. For those costs that cannot be assigned using a tracing approach, you may assign them using direct labor hours.4. Melissa receives $1.80 per copy of the magazine and $0.45 per brochure. Prepare anincome statement for the first month of operations.
Melissa Vassar has decided to open a printing shop. She has secured two contracts. One is a
5-year contract to print a popular regional magazine. This contract calls for 5,000 copies each
month. The second contract is a 3-year agreement to print tourist brochures for the state. The
state tourist office requires 10,000 brochures per month.
Melissa has rented a building for $1,400 per month. Her printing equipment was purchased
for $40,000 and has a life expectancy of 20,000 hours with no salvage value.
magazine printing. In the second run, the equipment is reconfigured for brochure printing. It
takes twice as long to configure the equipment for the magazine setup as it does for the brochure
setup. The total setup costs per month are $600.
Insurance costs for the building and equipment are $140 per month. Power to operate the
printing equipment is strongly related to machine usage. The printing equipment causes virtually all the power costs. Power costs will run $350 per month. Printing materials will cost $0.40
per copy for the magazine and $0.08 per copy for the brochure. Melissa will hire workers to
run the presses as needed (part-time workers are easy to hire). She must pay $10 per hour. Each
worker can produce 20 copies of the magazine per printing hour or 100 copies of the brochure.
Distribution costs are $500 per month. Melissa will receive a salary of $1,500 per month. She
is responsible for personnel, accounting, sales, and production—in effect, she is responsible for
administering all aspects of the business.
Required:
1. What are the total monthly
2. What are the total monthly prime costs? What are the total monthly prime costs for the
regional magazine? For the brochure?
3. What are the total monthly conversion costs? Suppose Melissa wants to determine
monthly conversion costs for each product. Assign monthly conversion costs to each
product using direct tracing and driver tracing whenever possible. For those costs that cannot be assigned using a tracing approach, you may assign them using direct labor hours.
4. Melissa receives $1.80 per copy of the magazine and $0.45 per brochure. Prepare an
income statement for the first month of operations.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 4 images
