Steel Company USA is a metal fabricating business that sells products mainly to the home construction market. The data table that follows should be used in this assignment. The problems are at the end of the data table.
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Inputs
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Costs
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Sandpaper
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$4,000
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Materials - handling costs
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$140,000
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Lubricants and coolants
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$10,000
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Misc indirect labor
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$80,000
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Misc direct labor
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$600,000
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Direct materials inv Jan 1, 2010
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$80,000
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Direct materials inv Dec 31, 2010
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$100,000
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Finished goods inv, Jan 1, 2010
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$200,000
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Finished goods inv, Dec 31, 2010
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$300,000
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WIP Jan 1, 2010
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$20,000
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WIP Dec 31, 2010
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$28,000
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Plant lease costs
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$108,000
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Depreciation - PPE
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$72,000
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Property taxes
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$8,000
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Insurance
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$6,000
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Direct materials purchased
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$920,000
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Revenues
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$2,720,000
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Marketing Promo
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$120,000
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Marketing Salaries
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$200,000
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Distribution costs
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$140,000
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Customer service costs
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$200,000
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1. Using the information in the table, create an income statement with a schedule for costs of goods manufactured. Make sure that for the costs you classify if they are direct or indirect and indicate if they are variable or fixed.
2. Let's assume that both direct material costs and plant leasing costs are for the production of 1,800,000 units. What would be the direct material cost of each of these units produced? Plant leasing cost per unit? Plant leasing should be a fixed cost here.
3. Now let's assume we build 2,000,000 units next year. Repeat the calculations in item #2 above for direct materials and plant leasing costs.
4. Explain why the unit costs for direct materials didn't change in numbers 2 and 3, but the unit costs for the plant lease did.