Sid Freeman Has Developed a New Electronic Device That He

question 116

Essay

Sid Freeman has developed a new electronic device that he has decided to produce and market.The production facility will be in a nearby industrial park which Sid will rent for $4,000 per month.Utilities will cost about $500 per month.He will use his personal computer,which he purchased for $2,000 last year,to monitor the production process.The computer will become obsolete before it wears out from use.The computer will be depreciated at the rate of $1,000 per year.He will rent production equipment at a monthly cost of $8,000.Sid estimates the material cost per finished unit of product to be $50,and the labor cost to be $10.He will hire workers,and spend his time promoting the product.To do this he will quit his job which pays $4,500 per month.Advertising will cost $2,000 per month.Sid will not draw a salary from the new company until it gets well established.
Required:
Complete the chart below by placing an "X" under each heading that helps to identify the cost involved.There can be "Xs" placed under more than one heading for a single cost;e.g. ,a cost might be a sunk cost,an overhead cost,and a product cost.There would be an "X" placed under each of these headings opposite the cost. *Between the alternatives of producing and not producing the device.

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Definitions:

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