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.