Question

Kilgore Company makes and sells a single product. Kilgore incurred the following costs in its most recent fiscal year: Cost Items Appearing on the Income Statement Materials cost ($7 per unit) Sales commissions (2% of sales) Company president’s salary Salaries of administrative personnel Depreciation on manufacturing equipment Shipping and handling ($0.50 per unit) Customer billing costs (1% of sales) Depreciation on office furniture Rental cost of manufacturing facility Manufacturing supplies ($0.25 per unit) Advertising costs ($200,000 per year) Production supervisor’s salary Labor cost ($8 per unit) Kilgore could purchase the products that it currently makes. If it purchased the items, the company would continue to sell them using its own logo, advertising program, and sales staff. Required Identify each cost as relevant or irrelevant to the outsourcing decision and indicate whether the cost is fixed or variable relative to the number of products manufactured and sold.

Answer 1

Answer:

Instructios are listed below

Explanation:

If it purchased the items, the company would continue to sell them using its own logo, advertising program, and sales staff.

Relevant costs:

Materials cost ($7 per unit): Variable

Depreciation on manufacturing equipment: Fixed

Rental cost of manufacturing facility: Fixed

Manufacturing supplies ($0.25 per unit): Variable

Production supervisor’s salary: Fixed

Labor cost ($8 per unit): Variable

Irrelevant costs:

Sales commissions (2% of sales): Variable

Company president’s salary: Fixed

Salaries of administrative personnel: Fixed

Shipping and handling ($0.50 per unit): Variable

Customer billing costs (1% of sales): Variable

Depreciation on office furniture: Fixed

Advertising costs ($200,000 per year): Fixed