Chapter 1, Problem 1PSB

1.

To determine

To identify:Nature of cost.

Explanation of Solution

1.

(a)

The cost is the variable costs.

Variable cost remains per unit fixed. It increases with respect to the increase in the units of the production. Here, cost of the plastic for BDs will increase with respect to increase in the number of the units. So, it is the variable cost.

(b)

The cost is the product cost.

Plastic for BDs is related to the direct material and it related to the manufacturing the product. So, that is why it is related to the product cost.

2.

(a)

The cost is the variable costs.

Variable cost remains per unit fixed. It increases with respect to the increase in the units of the product. Here, cost of the wages of the assembly increases with respect to the increase in the number of the units. So, it is the variable cost.

(b)

The cost is the product cost.

Product cost is that cost which is directly related to the manufacturing the product. Here, wages of assembly worker is related to the manufacturing of the product. So, it will be product cost.

3.

(a)

The cost is the fixed cost.

Fixed cast is that cost which varies per unites from increase or decrease of the no of the unites. Here cost of factory rent is fixed cost because it varies with increase or decrease of no of the units of the product.

(b)

The cost is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Cost of factory rent is not related to the manufacturing of the product. It is related to the administration. So, it is the period cost.

4

(a)

Fixed cast is that cost which varies per unites from increase or decrease of the no of the unity. Here, systems staff salary is fixed cost because it varies with increase or decrease of no of the units of the product.

(b)

The cost is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. System staff salary is not related to the manufacturing of the product. It is related to the administration. So, it is the period cost.

5.

(a)

The cost is the variable cost.

Variable cost remains per unit fixed. It increases with respect to the increase in the units of the product. Here, cost of labeling increases with respect to the increase in the number of the units. So, labeling is the variable cost.

(b)

The cost is the product cost.

Product cost is that cost which is directly related to the manufacturing the product. Labeling are related to the purchase and manufacturing of the product. So, labeling is product cost.

6.

(a)

The cost is the fixed cost.

Fixed cast is that cost which varies per unites from increase or decrease of the no of the unity. Here, Rent cost of the equipment is fixed cost because it varies with increase or decrease of no of the units of the product.

(b)

The cost is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Rent cost of equipment is not related to the manufacturing of the product. It is related to the administration. So, it is the period cost

7.

(a)

The cost is fixed cost.

Fixed cast is that cost which varies per unites from increase or decrease of the no of the unity. Here, Upper management salaries are fixed cost because it varies with increase or decrease of no of the units of the product.

(b)

The cost is period cost.

Period cost is the cost which is not related to the manufacturing of the product. Upper management salary is not related to the manufacturing of the product. It is related to the administration. So, it is the period cost

8.

(a)

The cost is the fixed cost.

Fixed cast is that cost which varies per unites from increase or decrease of the no of the unity. Here, Annual fixed fee for cleaning service are fixed cost because it varies with increase or decrease of no of the units of the production.

(b)

The cont is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Annual fixed fee for cleaning service is not related to the manufacturing of the product. It is related to the administration. So, it is the period cost

9.

(a)

The cost is the variable cost.

Variable cost remains per unit fixed. It increases with respect to the increase in the units of the product. Here, cost of sales commission increases with respect to the increase in the number of the units. So, sales commission is the variable cost.

(b)

The cost is the period cost.

Period cost is the cost which is not related to the manufacturing of the product. Sales commission is not related to the manufacturing of the product. It is related to the administration and selling. So, it is the period cost

10.

(a)

The cost is the fixed cost.

Fixed cast is that cost which varies per unites from increase or decrease of the no of the unity. Here, Machinery depreciation (straight line) is fixed cost because per unity cost varies with increase or decrease of no of the units of the production.

(b)

The cost is the period cost.

Machinery deprecation incurs once in the year and it is not related to the manufacturing of the production. So, it is the period cost.

2.

Computation of the manufacturing per BDs cost,

Particulars	Amounts ($)	Amounts ($)
Variable costs:
Plastic for BDs	1,500
Wages for assembly workers	30,000
Labeling ($0.25 per BD)	3,750
Total variable costs (A)		35,250
Fixed cost:
Cost of factory rent	6,750
Annual fixed fee for cleaning service	4,520
Machinery deprecation, straight line method	18,000
Total fixed cost (B)		29,270
Total manufacturing cost $\left(\text{A}\right)+\left(\text{B}\right)$		64,520
Number of BDs (C)		15,000
Manufacturing cost per BD$\frac{\left(\text{A}\right)+\left(\text{B}\right)}{\left(\text{C}\right)}$		4.30
Table (1)

Hence, manufacturing cost per BDs is $4.30 per unit.

3.

Given,
Cost of plastic for BDs is $1,500.
Number of BDs are 15,000.

Formula to calculate the per unit BD,

$\text{Per}\text{unit}\text{cost}\text{of}\text{BD}=\frac{\text{Total}\text{cost}\text{of}\text{the}\text{plastic}\text{for}\text{BD}}{\text{Number}\text{of}\text{BDs}}$

Substitute, $1,500 for total cost for plastic for BS and 15,000 unit for number of BDs,

$\begin{array}{c}\text{Per}\text{unit}\text{cost}\text{of}\text{the}\text{BD}=\frac{\$1,500}{15,000\text{units}}\\ =\$0.1\end{array}$

Formula to calculate total cost for the BDs,

$\text{Total}\text{cost}\text{of}\text{plastic}\text{BD}=\text{Per}\text{unit}\text{cost}\text{of}\text{BD}\times \text{Number}\text{of}\text{BDs}$

Substitute, $0.1 for per unit cost of BD and 10,000 units for number of BDs,

$\begin{array}{c}\text{Total}\text{cost}\text{of}\text{plastic}\text{BD}=\$0.1\times 10,000\text{units}\\ =\$1,000\end{array}$

Hence, total cost of plastic for BD will be $1,000.

4

Given,
Factory rent is $6,750.
Number of BDs is 15,000.

Formula to calculate the per unit cast of the factory rent,

$\text{Per}\text{unit}\text{cost}\text{of}\text{factory}\text{rent}=\frac{\text{Total}\text{cost}\text{of}\text{factory}}{\text{Number}\text{of}\text{BD}}$

Substitute, $6,750 for total cost of factory rent and 15,000 for number of BDs,

$\begin{array}{c}\text{Per}\text{unit}\text{cost}\text{of}\text{factory}\text{rent}=\frac{\$6,750}{15,000\text{units}}\\ =\$0.45\end{array}$

Hence, per unit cost of the factory rent is $0.45.

Formula to calculate per unit cost of the factory rent,

$\text{Per}\text{unit}\text{cost}\text{of}\text{factory}\text{rent}=\frac{\text{Total}\text{cost}\text{of}\text{factory}\text{rent}}{\text{Number}\text{of}\text{BD}}$

Substitute $6,750 for total cost of the factory rent and 10,000 for number of BD.

$\begin{array}{c}\text{Per}\text{unit}\text{cost}\text{of}\text{factory}\text{rent}=\frac{\$6,750}{10,000\text{units}}\\ =\$0.675\end{array}$

Hence, per unit cost of the factory rent is $0.675.