Linda Wheeler has worked as the plant manager of Vicksburg Corporation, a large manufacturing company, for 10
Question:
Ms. Wheeler already has firm orders for 800 stereos from several automotive producers. Based on the contacts that she has made working for Vicksburg, Ms. Wheeler is confident that she can make and sell 2,000 stereos during the first year of operation. However, before making a final decision, she decides to investigate the profitability of starting her own business. Relevant information follows:
Components from suppliers...................................................... $52.00 per stereo
Assembly labor...................................................................... $20.00 per hour
Rent of manufacturing buildings............................................. $14,000.00 per year
Utilities........................................................................... $480.00 per month
Sales salaries..................................................................... $960.00 per month
Depreciation of equipment...................................................... $3,200.00 per year
Labor............................................................................... 3 hours per stereo
During the first year, Ms. Wheeler expects to be able to produce the stereos with only two production workers and a part-time salesperson to market the product. Ms. Wheeler expects to devote her time to the administrative aspects of the business and to provide back-up support in the production work. She has decided not to pay herself a salary but to live off the profits of the business.
Required
a. Classify each cost item into the categories of direct materials, direct labor, and manufacturing overhead.
b. Classify each cost item as either variable or fixed.
c. What is the cost per stereo if Ms. Wheeler's company produces 800 units per year? What is the unit cost if the company produces 2,000 units per year?
d. If Ms. Wheeler's job presently pays her $24,000 a year, would you recommend that she proceed with the plans to start the new company if she could sell stereos for $184 each?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Fundamental Managerial Accounting Concepts
ISBN: 978-1259569197
8th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds
Question Posted: