Question

Question: Listed here are the total costs associated with the 2017 production of 15,000 Blu-ray Discs (BDs) manufactured by Maxwell. The BDs sell for \(18 each.

Costs	Variable or fixed		Product or period
	Variable	Fixed	Product	period
1. Plastic for BDs - \)1,500	\(1,500		\)1,500
2. Wages of assembly workers - \(30,000
3. Cost of factory rent - \)6,750
4. System staff salaries - \(15,000
5. Labelling - \)0.25 Per BD
6. Cost of office equipment rent - \(1,050
7. Upper management salaries - \)120,000
8. Annual fixed fees for cleaning service - \(4,250
9. Sales commission - \)0.50 per BD
10. Machinery depreciation, straight-line - $18,000

Required

1. Classify each cost and its amount as (a) either variable or fixed and (b) either product or period. (The first cost is completed as an example.)

2. Compute the manufacturing cost per BD.

Analysis Component

3. Assume that 10,000 BDs are produced in the next year. What do you predict will be the total cost of plastic for the BDs and the per unit cost of the plastic for the BDs? Explain.

4. Assume that 10,000 BDs are produced in the next year. What do you predict will be the total cost of factory rent and the per unit cost of the factory rent? Explain.

Short answer

Answer

1. Variable production cost totals: $35,250

Particular	Amount $
Plastic for BD’s	$1,500
Wages of assembly workers	$30,000
Labeling	$3,750
Variable production cost	$35,250

1. The manufacturing cost per unit is$3.83.
2. The total cost of plastic for BD’s:$1,000 and$0.1 per unit.
3. The total cost of factory rent:$6,750and $0.675per unit

Step-by-step solution

Definition of Office Supplies

Office supplies can be defined as the equipment or any assets that are utilized by the business entity in its offices. These are reported as assets until they are used, and after usage, they are recorded as expenses.

Cost classification

Costs	Variable or fixed		Product or period
	Variable	Fixed	Product	Period
1. Plastic for BDs - $1,500	$1,500		$1,500
2. Wages of assembly workers - $30,000	$30,000		$30,000
3. Cost of factory rent - $6,750		6,750		6,750
4. System staff salaries - $15,000		15,000		15,000
5. Labelling - $0.25 Per BD	$3,750		$3,750
6. Cost of office equipment rent - $1,050		$1,050		$1,050
7. Upper management salaries - $120,000		$120,000		$120,000
8. Annual fixed fees for cleaning service - $4,250		$4,250	$4,250
9. Sales commission - $0.50 per BD	7,500			7,500
10. Machinery depreciation, straight-line - $18,000		$18,000	$18,000

Manufacturing cost per BD

Particular	Amount $	Per unit
Plastic for BDs	$1,500	$0.1
Wages of assembly workers	30,000	2
Labelling	3,750	0.25
Total variable cost	$35,250	$2.35
Fixed cost:
Annual fixed fees for cleaning service	4,250	$0.28
Machinery depreciation, straight-line	18,000	1.2
Total Fixed cost	$22,250	$1.48
Total cost	$57,500	$3.83

Total and per unit cost of plastic for BD’s when business entity produces 10,000 units

$\begin{array}{rcl}\mathbf{Total}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{plastic}\mathbf{}\mathbf{for}\mathbf{}\mathbf{BD}\mathbf{\text{'}}\mathbf{s}& \mathbf{=}& \mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{plastic}\mathbf{}\mathbf{for}\mathbf{}\mathbf{BD}\mathbf{\text{'}}\mathbf{s}\mathbf{\times }\mathbf{10}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{1}\mathbf{\times }\mathbf{10}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{000}\end{array}$

The cost of plastic for BD’s will remain the same at $0.1 per unit.

Total and per unit cost of factory rent  

The total cost of factory rent will remain at $6,750 because it is a fixed cost.

$\begin{array}{rcl}\mathbf{Per}\mathbf{}\mathbf{unit}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{of}\mathbf{}\mathbf{factoryrent}& \mathbf{=}& \frac{\mathbf{Totalcost}}{\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{units}\mathbf{}\mathbf{produced}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{750}}{\mathbf{10}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{675}\\ & & \end{array}$