MM WORKSHEET 1 SOLUTION.doc

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Department
Business Administration
Course
Business Administration 3301K
Professor
Bob Larose
Semester
Winter

Description
Worksheet: Metric 1 Expense Types (SOLUTION) 1) The Comfy Chair Company makes reclining chairs at its plant and sells them exclusively through its own retail store. It has the following expenses: Plant rent and taxes = $12,000.00 Office and management expenses = $220,000.00 Machinery and equipment purchased = $100,000.00 Direct materials = $27.00/chair Direct labour = 4 hours/chair @ $14.00/hour Transportation = $5.00/chair Commercial store front unit purchase = $500,000.00 Advertising costs = $100,000.00 Sales staff wages before commissions = $250,000.00 Commission = $12.00/chair (a)Identify the Comfy Chair Company’s variable costs. (b)What is the total cost to produce and sell each reclining chair? (c)Identify the Comfy Chair Company’s fixed costs. (d)What are the total fixed costs? (e)Identify the one-time fixed costs incurred by the Comfy Chair Company. (f) What are the total one-time fixed costs? Answer: (a) Direct materials = $27.00/chair Direct labour = 4 hours/chair @ $14.00/hour Transportation = $5.00/chair Commission = $12.00/chair (b) $100.00/chair (c) Plant rent and taxes = $12,000.00 Office and management expenses = $220,000.00 Advertising costs = $100,000.00 Sales staff wages = $250,000.00 (d) $582,000.00 (e) Machinery and equipment purchased = $100,000.00 Commercial store front unit = $500,000.00 (f) $600,000.00 2) Thompson Toiletries, Inc. has developed an addition to its mens’ cologne line tentatively branded Ode d’Toad Cologne. It costs 45 cents to produce each 60mL bottle, and heavy advertising expenditures in the first year would cost $900,000. Ode d’Toad Cologne is priced at $7.50 for a 60mL bottle. (a)What is the variable cost per unit to produce a bottle of Ode d’Toad? (b)What are the total fixed costs to produce and sell Ode d’Toad? Answer: (a) Variable cost per unit = $0.45 (b) Total fixed costs = $900,000 3) Executives of Radical Recordings Ltd. produced an album entitled Sunshine/Moonshine by the Starshine Sisters Band. The cost and price information was as follows: Album cover
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