Reference no: EM132535270

You, the managerial accountant, are asked by the CFO (Mr. Smith) of Wilson-West Manufacturing (a new company) to set up a product costing system. The following are the types of expenses that will be included:

1. Direct labor
2. Direct materials
3. Utilities
4. Depreciation
5. Maintenance
6. Insurance on the equipment
7. Rent on the plant
8. Administrative salaries
9. Rent for the office

In a memo format, explain to Mr. Smith and the president what will be included in product costing.

Question 1: Explain what is involved in a product costing system.

Question 2: Explain why Wilson-West Manufacturing needs to have a product costing system.

Question 3: Allocate the above expenses as fixed, mixed, or variable expenses.

Question 4: Prepare calculations for the following, and explain your computations:

1. Variable cost: The unit rate is $0.25, and the actual hours used for manufacturing are 15,000.
2. Mixed cost: The unit rate is $0.25, actual hours are 10,000, and the fixed cost is $5,000 per month.
3. Total cost: Use your calculations from above.

Question 5: Explain this to Mr. Smith who will prepare these calculations on a monthly basis.