Water Technology, Inc. incurred the following costs during 20x1. The company sold all of its products manufactured during the year. Direct material .......................................................................................$3,000,000Direct labor ................................................................................................2,200,000Manufacturing overhead:Utilities (primarily electricity) ..............................................................140,000Depreciation on plant and equipment ...........................................230,000Insurance ...................................................................................................160,000Supervisory salaries ...............................................................................300,000Property taxes .........................................................................................210,000Selling costs:Advertising ..............................................................................................195,000Sales commissions .................................................................................90,000Administrative costs:Salaries of top management and staff .........................................372,000Office supplies ........................................................................................40,000Depreciation on building and equipment ...................................80,000 During 20x1, the company operated at about half of its capacity, due to a slowdown in the economy. Prospects for 20x2 are slightly better. Jared Lowes, the marketing manager, forecasts a 20 percent growth in sales over the 20x1 level. Direct material, 20x2 forecast: $3,600,000 Required: Categorize each of the costs listed above as to whether it is most likely variable or fixed. Forecast the 20x2 cost amount for each of the cost items listed above.
Water Technology, Inc. incurred the following costs during 20x1. The company sold all of its products manufactured during the year.
Direct material .......................................................................................$3,000,000
Direct labor ................................................................................................2,200,000
Manufacturing overhead:
Utilities (primarily electricity) ..............................................................140,000
Depreciation on plant and equipment ...........................................230,000
Insurance ...................................................................................................160,000
Supervisory salaries ...............................................................................300,000
Property taxes .........................................................................................210,000
Selling costs:
Advertising ..............................................................................................195,000
Sales commissions .................................................................................90,000
Administrative costs:
Salaries of top management and staff .........................................372,000
Office supplies ........................................................................................40,000
Depreciation on building and equipment ...................................80,000
During 20x1, the company operated at about half of its capacity, due to a slowdown in the economy. Prospects for 20x2 are slightly better. Jared Lowes, the marketing manager, forecasts a 20 percent growth in sales over the 20x1 level.
Direct material, 20x2
Required: Categorize each of the costs listed above as to whether it is most likely variable or fixed. Forecast the 20x2 cost amount for each of the cost items listed above.
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