Campbell Modems, Inc. makes modem cards that are used in notebook computers. The company completed the following transactions during year 1. All purchases and sales were made with cash.
- Acquired $770,000 of cash from the owners.
- Purchased $310,000 of manufacturing equipment. The equipment has a $42,000 salvage value and a four-year useful life.
- The company started and completed 6,000 modems. Direct materials purchased and used amounted to $44 per unit.
- Direct labor costs amounted to $29 per unit.
- The cost of manufacturing supplies used amounted to $8 per unit.
- The company paid $54,000 to rent the manufacturing facility.
- Magnificent sold all 6,000 units at a cash price of $140 per unit. (Hint: It will be necessary to determine the manufacturing costs in order to record the cost of goods sold.)
- The sales staff was paid a $8 per unit sales commission.
- Paid $43,000 to purchase equipment for administrative offices. The equipment was expected to have a $3,400 salvage value and a three-year useful life.
- Administrative expenses consisting of office rental and salaries amounted to $72,550.
Required
- Based on these data, identify each cost incurred by the company as (1) fixed versus variable relative to the number of units produced and sold; and (2) product versus selling, general, and administrative (SG&A). The solution for the first item is shown as an example.
- Complete the following table to indicate the product cost per unit assuming levels of production of 6,000, 7,000, 8,000, and 9,000.
ExplanationFixed cost of goods sold = $67,000 (Depreciation on manuf. equip .) + $54,000 (Rent on manuf. facility) = $121,000
Variable cost / unit = ($607,000 − $121,000) ÷ 6,000 = $81 / unit
Cost of goods sold at 7,000 units = $81 x 7,000 + $121,000 = $688,000
Cost of goods sold at 8,000 units = $81 x 8,000 + $121,000 = $769,000
Cost of goods sold at 9,000 units = $81 x 9,000 + $121,000 = $850,000
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