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A company is a wooden product manufacturer specializing in wood kitchen and home products such as paper towel and napkin holders, coasters, canisters, dish racks, coat racks, and magazine holders. The company is looking to branch out into the garden market and wants to start by producing wooden bird houses or bird feeders. The company plant already possesses the machinery and a fabrication and assembly department to make the houses and feeders. The following information includes costs for each product and the projected numbers for the first month.

You are to present the product to the Board of Directors. The proposal should anticipate numbers for operating production for one year. In order for the product to be considered, the bird house has to be produced at a minimum of 4,300 units the first year.

I. Product and Company Background

Bird House

Components: Wood and plastic

Direct Materials:

- Wood: 0.80 ft. per unit of product; cost is $6.00 per foot

- Plastic: 0.50 lb. per unit of product; cost is $0.80 per pound

- Need: Wood 290ft

- Need: Plastic: 340 lbs.

= 360 houses to sell at $22 per unit

Direct labor requirements for the first month: Bird House

- Fabrication 0.20 hr. at $15 per hour

- Assembly 0.30 hr. at $11 per hour

Below is the current financial information for the company. These numbers do not reflect the impact of the new product you plan to recommend.

- Revenue: $3,453,234

- Operating Expenses: $ 1,984,342

- Net Income: $1,468,892

Estimated factory overhead costs for the first month (current/unadjusted):

- Indirect factory wages $78,000

- Power and light $7000

- Depreciation of plant and equipment $19,300

- Insurance and property tax $3,700

Estimated operating expenses for the first month (current/unadjusted):

- Sales salaries expense $58,000

- Advertising expense $25,000

- Office salaries expense $36,000

- Depreciation expense-office equipment $700

- Telephone expense $832

- Office supplies expense $300

II. Costing Analysis

Your first step is to estimate the impact the new product will have on the current financial information.

Determine by what percentage revenue is expected to increase (consider the price that will be paid per unit and how many units you plan to produce). Remember to meet the minimum for production and to take into consideration the factors below:

  • Current operating expenses will increase by 15% in the first year of production of the new product
  • Sales and advertising costs will increase by 10%
  • Factory wages will increase by 15% for additional labor
  • Power and light costs will increase by 10% for extra usage

Second, you will develop costing for the product units to explain the manufacturing expenses that the proposed product will require in the first year of production. This portion requires the following documents:

  • Bill of Materials
  • Operations Flow Document
  • Labor Costing

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M9746370

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