Answer:
Part 1
<u>Variable Costs </u>
Direct material $5,000,000
Direct labor $2,400,000
<u>Fixed Costs</u>
$
Utilities (primarily electricity) 120,000
Depreciation on plant and equipment 220,000
Insurance 150,000
Supervisory salaries 400,000
Property taxes 230,000
Salaries of top management and staff 372,000
Office supplies 45,000
Depreciation on building and equipment 80,000
Part 2
<u>Forecast the 20x2 cost amount for each of the cost items listed</u>
Direct material ($5,000,000 x 1.20) $6,000,000
Direct labor (2,400,000 x 1.20) $2,880,000
Utilities (primarily electricity) $120,000
Depreciation on plant and equipment $220,000
Insurance $150,000
Supervisory salaries $400,000
Property taxes $230,000
Salaries of top management and staff $372,000
Office supplies $45,000
Depreciation on building and equipment $80,000
Explanation:
Variable Costs vary with the level of production. Examples are Direct Materials and Direct labor.
Fixed Costs remain constant for any production level. Examples are Depreciation and Utilities such as electricity.
A growth in Sales will affect the Variable Costs only. As production increases to meet the 20 percent growth in sales so do these costs since they vary in direct proportion to the level of production.
