Types of Costs & Product Costing

    

Assignment Description:

You, the managerial accountant, are asked by the CFO (Mr. Smith) of Wilson–West Manufacturing (a new company) to set up a product costing system. The following are the types of expenses that will be included: 

Direct labor 

Direct materials 

Utilities 

Depreciation 

Maintenance 

Insurance on the equipment 

Rent on the plant 

Administrative salaries

Rent for the office 

In a memo format, explain to Mr. Smith and the president what will be included in product costing.

Explain what is involved in a product costing system. 

Explain why Wilson–West Manufacturing needs to have a product costing system. 

Allocate the above expenses as fixed, mixed, or variable expenses. 

Prepare calculations for the following, and explain your computations: 

Variable cost: The unit rate is $0.25, and the actual hours used for manufacturing are 15,000. 

Mixed cost: The unit rate is $0.25, actual hours are 10,000, and the fixed cost is $5,000 per month. 

Total cost: Use your calculations from above. 

Explain this to Mr. Smith who will prepare these calculations on a monthly basis.