The Prime Company began operations several years ago. The company purchased a building and, since only...

 

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The Prime Company began operations several years ago. The company purchased a building and, since only half of the space was needed for operations, the remaining space was rented to another firm for rental revenue of $20,000 per year. The success of Prime Company's product has resulted in the company needing more space. The renter's lease will expire next month and Prime will not renew the lease in order to use the space to expand operations and meet demand. The company's product requires materials that cost $25 per unit. The company employs a production supervisor whose salary is $2,000 per month. Production line workers are paid $15 per hour to manufacture and assemble the product. The company rents the equipment needed to produce the product at a rental cost of $1,500 per month. Additional equipment will be needed as production is expanded and the monthly rental charge for this equipment will be $900 per month. The building is depreciated on the straight-line basis at $9,000 per year. The company spends $40,000 per year to market the product. Shipping costs for each unit are $20 per unit. The company plans to liquidate several investments in order to expand production. These investments currently earn a return of $8,000 per year. Required: Complete the answer sheet above by placing an "X" under each heading that identifies the cost involved. The "Xs" can be placed under more than one heading for a single cost, e.g., a cost might be a sunk cost, an overhead cost, and a product cost. An "X" can thus be placed under each of these headings opposite the cost. The Prime Company began operations several years ago. The company purchased a building and, since only half of the space was needed for operations, the remaining space was rented to another firm for rental revenue of $20,000 per year. The success of Prime Company's product has resulted in the company needing more space. The renter's lease will expire next month and Prime will not renew the lease in order to use the space to expand operations and meet demand. The company's product requires materials that cost $25 per unit. The company employs a production supervisor whose salary is $2,000 per month. Production line workers are paid $15 per hour to manufacture and assemble the product. The company rents the equipment needed to produce the product at a rental cost of $1,500 per month. Additional equipment will be needed as production is expanded and the monthly rental charge for this equipment will be $900 per month. The building is depreciated on the straight-line basis at $9,000 per year. The company spends $40,000 per year to market the product. Shipping costs for each unit are $20 per unit. The company plans to liquidate several investments in order to expand production. These investments currently earn a return of $8,000 per year. Required: Complete the answer sheet above by placing an "X" under each heading that identifies the cost involved. The "Xs" can be placed under more than one heading for a single cost, e.g., a cost might be a sunk cost, an overhead cost, and a product cost. An "X" can thus be placed under each of these headings opposite the cost.

Answer rating: 100% (QA)

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