What are the variable costs for this product line? What are the fixed costs?

T&J manufacturing 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 $1,000 for the wood and other direct 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 all product lines.

It assumes 800 units 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
Office Utilities and Misc office expenses(based on units sold) $ 20,000
Sales 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
QUESTIONS:

1. Determine the cost of manufacturing one custom kitchen assuming the units given. Assume the MOH costs are allocated based on the direct labor hours per unit. Please show all calculations and round to the nearest dollar. I would recommend that you calculate the MOH per kitchen first. Discuss other options (at least 2 options) for the activity base and the importance of the MOH allocation. Do multiple product lines impact the MOH allocation? What happens if MOH is not allocated correctly?

2. 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 and give an least two examples. If no, explain why?

3. Prepare a Job Order Cost sheet for the following custom kitchen: Materials $3,500 and 30 hours of labor. What is the customer price?

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