Question: Castro Company makes and sells a single product Castro incurred

Castro Company makes and sells a single product. Castro incurred the following costs in its most recent fiscal year.
Cost Items Appearing on the Income Statement
Materials cost ($9 per unit) ......... Sales commissions (1.50% of sales)
Company president’s salary......... Salaries of administrative personnel
Depreciation on manufacturing equipment ... Shipping and handling ($0.50 per unit)
Customer billing costs (1% of sales) .... Depreciation on office furniture
Rental cost of manufacturing facility ...... Manufacturing supplies ($0.25 per unit)
Advertising costs ($200,000 per year) ..... Production supervisor’s salary
Labor cost ($8 per unit)

Castro could purchase the products that it currently makes. If it purchased the items, the company would continue to sell them using its own logo, advertising program, and sales staff.

Identify each cost as relevant or irrelevant to the outsourcing decision and indicate whether the cost is fixed or variable relative to the number of products manufactured and sold.

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  • CreatedFebruary 07, 2014
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