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babykate66
babykate66
06.02.2020 • 
Business

Wollogong group ltd. of new south wales, australia, acquired its factory building about 10 years ago. for several years, the company has rented out a small annex attached to the rear of the building. the company has received a rental income of $30,000 per year on this space. the renter’s lease will expire soon, and rather than renewing the lease, the company has decided to use the space itself to manufacture a new product.

direct materials cost for the new product will total $80 per unit. to have a place to store finished units of product, the company will rent a small warehouse nearby. the rental cost will be $500 per month. in addition, the company must rent equipment for use in producing the new product; the rental cost will be $4,000 per month. workers will be hired to manufacture the new product, with direct labor cost amounting to $60 per unit. the space in the annex will continue to be depreciated on a straight-line basis, as in prior years. this depreciation is $8,000 per year.

advertising costs for the new product will total $50,000 per year. a supervisor will be hired to oversee production; her salary will be $1,500 per month. electricity for operating machines will be $1.20 per unit. costs of shipping the new product to customers will be $9 per unit.

to provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. these investments are presently yielding a return of about $3,000 per year.

required:
for each of the costs associated with the new product decision, indicate whether it would be variable or fixed. if it is a product cost, indicate whether it would be direct materials, direct labor or a manufacturing overhead cost. if it is not a product cost, indicate whether it is a period, opportunity or a sunk cost. select "none" if none of the categories apply for a particular item. note: opportunity cost is a special category, and to avoid confusion, do not attempt to classify the cost in any other way except as an opportunity cost.

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