Reference no: EM132653731

1. One of the company's perfumers has created a new fragrance and the company is studying the production and marketing of this innovation on a large scale. The company will rent a factory for 14,000 riyals per month for production purposes. This manufacturer has already taken an advanced course in perfume composition to help him create fragrances. The course cost was 15,000 riyals. The company will pay a bill for renting and insuring the production equipment at a monthly cost of 8,000 riyals. The company has estimated the following costs: direct materials per unit will be 25 riyals and direct labor will be 20 riyals per unit. Time to be spent promoting the perfume will cost 12,400 riyals per month. In addition, 20,000 riyals of the salary of the existing sales manager will be allocated to the fragrance.

You are required to classify the costs related to producing this fragrance by completing the table below by placing an "X" in a box that matches a cost item to the appropriate cost classifications. A cost item may be classified under more than one classification and in that case, you may place more than one "X" for those cost items. Similar, cost classifications may include more than one cost item, in which case those cost classifications may have more than one "X". For example, cost may be a sunk cost and at the same time a manufacturing overhead cost, and so there will be an "X" placed under each of these classification against the cost. 1. Explain the reasons behind your classifications in requirement 2. Justify your answers.

2. The Company is expected to produce 14,000 bottles of the perfume. In accordance to the information provided on requirement 2, you are required to calculate the following values with the equations clearly written in the report:

Question a: What is the value of the total conversion cost? Show your work

Question b: What is the value of the total cost of production? Show your work

Question c: What is the value of the total period costs? Show your work