Staci Valek began dabbling in pottery several years ago as a hobby. Her work is quite creative, and it has
been so popular with friends and others that she has decided to quit her job with an aerospace company
and manufacture pottery full time. The salary from Stadls aerospace job is $3,800 per month. Staci will
rent a small building near her home to use as a place for manufacturing the pottery. The rent will be
$500 per month. She estimates that the cost ol day and glaze will be $2 for each finished piece of
pottery. She will hire workers to produce the pottery at a labor rate of $8 per pot. To sell her pots, Stad
feels that she must advertise heavily in the local area. An advertising agency states that it will handle all
advertising for a fee of $600 per month. Staci's brother will sell the pots; he will be paid a commission of
$4 for each pot sold. Equipment needed to manufacture the pots will be rented at a cost of $300 per
month. Stacl has already paid the legal and filing fees associated with incorporating her business in the
state. These fees amounted to $500. A small room has been located in a tourist area that Staci will use
as a sales office. The rent will be $250 per month. A phone installed in the room for taking orders will
cost $40 per month, In addition, a recording device will be attached to the phone for taking after-hours
messages. Stad has some money in savings that is earning interest of $1,200 per year. These savings will
be withdrawn and used to get the business going. For the time being, Stad does not intend to draw any
salary from the new company
Required
1. Prepare an answer sheet with the following column headings:
period cost
product cost
name of cost
variable cost
fix cost
direct matrial cost
direct labor cost
moh
selling and admin cost
opportunity cost
sunk cost
2. All of the costs you have listed above, except one, would be differential costs between the al-
ternatives of Staci producing pottery or staying with the aerospace company. Which cost is nou
differential? Explain
Answers
Answer:
idont know this my answer
Answer:
HERE IS YOUR ANSWER
Explanation:
Staci Valek began dabbling in pottery several years ago as a hobby. Her work is quite creative, and it has been so popular with friends and others that she has decided to quit her job with an aerospace company and manufacture pottery full time. The salary from Staci’s aerospace job is $3,800 per month.
Staci will rent a small building near her home to use as a place for manufacturing the pottery. The rent will be $500 per month. She estimates that the cost of clay and glaze will be $2 for each finished piece of pottery. She will hire workers to produce the pottery at a labor rate of $8 per pot. To sell her pots, Staci feels that she must advertise heavily in the local area. An advertising agency states that it will handle all advertising for a fee of $600 per month. Staci’s brother will sell the pots; he will be paid a commission of S4 for each pot sold. Equipment needed to manufacture the pots will be rented at a cost of $300 per month.
Staci has already paid the legal and filing fees associated with incorporating her business in the state. These fees amounted to $500. A small room has been located in a tourist area that Staci will use as a sales office. The rent will be $250 per month. A phone installed in the room for taking orders will cost $40 per month. In addition, a recording device will be attached to the phone for taking after-hours messages.
Staci has some money in savings that is earning interest of $1,200 per year. These savings will be withdrawn and used to get the business going. For the time being, Staci does not intend to draw any salary from the new company.
Required:
1. Prepare an answer sheet with the following column headings:
Product Cost
Name of the Cost
Variable Cost
Fixed Cost
Direct Materiels
Direct Labor
Manufacturing Overhead
Period (Selling and Administrative) Cost
Opportunity Cost
Sunk Cost
List the different costs associated with the new company down the extreme left column (under Name of Cost). Then place an X under each heading that helps to describe the type of cost involved. There may be X's under several column headings for a single cost. (That is, a cost may be a fixed cost, a period cost, and a sunk cost; you would place an X under each of these column headings opposite the cost.)
Under the Variable Cost column, list only those costs that would be variable with respect to the number of units of pottery that are produced and sold.
2. All of the costs you have listed above, except one, would be differential costs between the alternatives of Staci producing pottery or staying with the aerospace company. Which cost is not differential? Explain.
Step-by-step solution:
Step 1 of 3
1. The salary foregone by Staci from her aerospace job, $3,800 per month is an opportunity cost. Since Staci will quit her job for venturing into pottery manufacturing, $3,800 will be the potential benefit given up for taking up pottery. The opportunity cost of $3,800 will not be found in Staci’s accounting records, but it is necessary and important to consider the same for making a decision. To avoid possible confusion with other costs we will not attempt to classify this cost in any other way except as an opportunity cost.
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