Question

Oscar Tame is the CEO of AnyDoppler Inc. His company manufactures ultra-thin speaker pads. Each pad has a wire that can connect to an iPod. The pad can be placed on any surface (e.g. wall, table or window) and utilizes the material properties of the surface to turn it into a speaker that transmits sound when activated. Oscar hired a plant manager, Sybil Vain, to oversee factory operations. He pays her an annual salary of $100,000. Factory rent amounts to $30,000 per year. During the year, Sybil purchased $500,000 worth of factory capital assets. There are 25 assembly line workers who work 8 hours a day, for 4 days a week, for 50 weeks a year at $30 per hour. The factory has a high-tech inventory system that is able to trace raw materials to each finished good accurately and inexpensively. During the year, the factory used $350,000 worth of raw materials to produce the speaker pads. Depreciation of the factory equipment amounted to $15,000 and factory electricity expenses amounted to $10,000. At the beginning of the year, Oscar purchased three company cars for the sales team. Each car cost the company $45,000. The depreciation on these cars amounted to $5,000 for the year. During the year, Oscar spent $400,000 on marketing campaigns. Oscar was paid $200,000 for the year and paid his receptionist $45,000 per year.

a) Calculate AnyDoppler’s product and period costs. Explain your reasons for identifying costs as either product or period costs.

b) Calculate AnyDoppler’s direct costs and indirect manufacturing costs. Provide explanations.

Answer 1