Question

The Outdoor Dining Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 3,900 sets per year. Annual cost data at full capacity follow:

Direct labour	$	92,000
Advertising	$	101,000
Factory supervision	$	68,000
Property taxes, factory building	$	20,000
Sales commissions	$	61,000
Insurance, factory	$	8,000
Depreciation, administrative office equipment	$	3,000
Lease cost, factory equipment	$	11,000
Indirect materials, factory	$	18,000
Depreciation, factory	$	106,000
Administrative office supplies	$	5,000
Direct materials used (wood, bolts, etc.)	$	431,000
Utilities, factory	$	47,000

Required:

1. Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as variable or fixed with respect to the number of units produced and sold; and second, as a selling and administrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect.)

2. Compute the average product cost per patio set. (Round your answer to nearest whole dollar.)

3. Assume that production drops to only 1,000 sets per year. Would you expect the average product cost per patio set to increase, decrease, or remain unchanged?

• Increase

• Decrease

• Remain unchanged

Answer 1

cost (5) i selling or (3) Product (I) Rehaviour Administrative cost cost Variable Fixed cost Direct Indirect elements Direct Labor 92000 92000 Advertising 101000 101000 factory supervision 68000 6800G Property taxess 29000 20,000 factory Building sales commission 61000 61000 Insurana factory 8000 8000 Depreciation admin 3000 3000 -nistrative office Equipment lease cast I T1000 11000 factory Equipment Indirect material 18000 factory Depreciation factory 106000 Administrative office 5000 supplies Direct material 431000 437000 used Otilities (factory (47000, 47000 Total cost 654000/317000 170,000 523000 278,000 18000 SOOO 27 The average Product per patio set is calculated belowir Product cost &$) - Direct cost + indirect cost = $523,000 +8278,000 $801000 Average product per patio set = $80100 - $205 3900 sets ! The average product cost per patio set will increase because if Production drops because The Fixed costs remain same lead to average cost increases!