Question

First Björn is examining the activities for the past year. Stylish Chairs rents a small administrative office in Melbourne's central business district (CBD) for $20,000 per year and a large warehouse in Dandenong for $30,000 per year.

The cost with staff in the administrative office in the CBD handling all the bureaucracy is $100,000 per year. Stylish Chairs has hired a firm for managing the sales and this firm charges a commission of $70 for each completed sale. The invoicing system used by Stylish Chairs is outsourced and for each sale completed the firm charges $1. The administrative office had in the past year other miscellaneous costs of $4,000, mostly costs with the lease of material and stationery, and this yearly cost is expected to remain the same amount for years to come.

A full-time employee gets paid $80,000 per year for supervising the casual staff working in the warehouse in Dandenong. Like the administrative office, the warehouse had other miscellaneous costs of $5,000 in the past year and is expected to remain the same amount for years to come.

Stylish Chairs has a contract with a delivery firm for delivering the copies of the 18th-century rococo chair to their clients, but Björn is not able to find the contract and is not sure how much the firm charges per transaction. The only information he can gather is regarding past year’s quarterly costs:

Table 1 – Quarterly delivery costs

Quarter	Delivery Cost	Units Delivered
First	$360	125
Second	$400	150
Third	$340	125
Quarter	$300	100
Total	$1,400	500

Below is a table listing all the material used during the past year to manufacture 500 copies of 18th century rococo chairs and the costs incurred. There was no stock or work in process in the beginning or end of the year.

Table 2 – Material costs

Material	Quantity	Total Cost
Fabric	1,500 m2	$3,000
Timber	6,000 Units	$36,000
Foam	500 Kilograms	$150
Button stud	4,500 Units	$450
Varnish	500 Litres	$10,000
Bolt	5,000 Units	$500

The manufacturing activity is made by casual staff. The first stage is the woodworking, where a carpenter is hired by $35 per hour for working with the timber. This task is very labour intensive and for preparing the material a carpenter takes 5 hours per chair. Once the timber is ready for being assembled a casual staff is paid $25 per hour for assembling the chair with the bolts and adding the paddings (fabric, foam, and button studs). The assembling takes only 1 hour per chair. The final stage of manufacturing is varnishing the chair. A casual staff is paid $35 per hour for varnishing the chairs and this task takes 2 hours.

Required

1. a) Björn is having some trouble crunching the numbers and has asked for your help identifying and classifying all the costs between (a) fixed, mixed, or variable, (b) direct or indirect, and (c) product cost or period cost. (Chapter 2, 10 marks)

2. b) Use the high-low method for estimating the cost function for annual delivery costs. (Chapter 9, 10 marks)

3. c) Björn is also having trouble computing the total product cost and unit product cost for the past year and asked for your help in calculating the total product cost and unit product cost for the past year for Stylish Chairs. (Chapter 2, 10 marks)

Answer 1

Explanation are provided for the first question at the end.

Hope you understood the solution. If you have any doubt please leave your doubt in the comment section so that I can clarify your doubt.

Thank you.