Question

Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines.

Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs.

The materials include $1,000for the wood and other materials of $200. Both items listed are on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%.

The company estimates that it will have 16,000 direct labor hours in total for the kitchen cabinets

It assumes 800units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:

Salaries-office & administrative$ 520,000

Salaries for factory personal$ 220,000

Office Rent $ 125,000

Factory Rent$ 20,000

Utilities and Misc office expenses(based on units sold)$ 20,000

Travel(based on units sold)$ 24,000

Insurance -office$ 12,000

Depreciation -office equipment$ 40,000

Depreciation for factory equipment$ 70,000

Advertising$ 20,000

Sales commissions(based on units sold)$ 45,000

Factory Property taxes$ 10,000

Maintenance for factory equipment$ 80,000

QUESTION:

What are the variable costs for this product line? What are the fixed costs? I would recommend that you show a schedule for each area on a yearly basis. For the variable costs, also, show them on a per unit(800 units) How does a company identify each type of cost? Can a cost classification be changed over time?If yes, explain how. If no, explain why?

Answer 1