Part 1
Cost classification and amounts
Costs
Cost by Behavior
Variable
Fixed
1. Drum stands (700 stands
$ 17,500
outsourced)—$17,500 ................
Cost by Function
Product
Period
$ 17,500
2. Annual flat fee paid for
maintenance service—$7,000 ....
$ 7,000
3. Rent cost of equipment for
sales staff—$12,000....................
12,000
$ 12,000
4. Upper management salaries—
$170,000.......................................
170,000
170,000
5. Wages of assembly workers—
$59,500.........................................
59,500
7,000
59,500
6. Property taxes on factory—
$3,500...........................................
3,500
7. Accounting staff salaries—
$42,000.........................................
42,000
8. Machinery depreciation—
$28,000.........................................
28,000
3,500
42,000
28,000
9. Sales commissions—$20 per
$20 x
unit ...............................................units sold
10. Plastic for casing—$12,600.......
12,600
$20 x
units sold
12,600
Part 2
Roland
Calculation of Manufacturing Cost per Drum Set
For Year Ended December 31, 2009
Item
Total cost
Per unit cost*
Variable manufacturing costs
Plastic for casing..........................................
$ 12,600
$ 18
Wages of assembly workers .......................
59,500
85
Drum stands..................................................
17,500
25
Total variable manufacturing costs ............
89,600
128
Property taxes on factory.............................
3,500
5
Annual fee for maintenance service ...........
7,000
10
Machinery depreciation................................
28,000
40
Total fixed manufacturing costs .................
38,500
55
Total manufacturing cost...............................
$128,100
$183
Fixed manufacturing costs
*Total cost / 700 drum sets
Part 3
If 1,000 drum sets are produced, we would expect the total cost of the
plastic for the casings to increase to $18,000 (1,000 drum sets x $18/set),
but the cost per unit will stay at $18 per drum set. Variable costs increase
in total as the number of units produced increases, but the unit cost
remains constant.
Part 4
If 1,000 drum sets are produced, we would expect the total cost of the
property taxes to remain at $3,500 because it is a fixed cost. However, the
cost per unit will decrease to $3.50/drum set ($3,500 / 1,000 sets). Fixed
costs do not change in total as production increases, but the unit cost will
decrease as production increases.