Question

Problem 2-25 Cost Classification and Cost Behavior L02-1, L02-2, LO2-3, LO2-4) The Dorilane 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 4,000 sets per year. Annual cost data at full capacity follow: $90,000 Direct labor Advertising 101,000 71,000 $19,000 $60,000 $ 6,000 Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation, administrative office equipment$ 2,000 Lease cost, factory equipment Indirect materials, factory Depreciation, factory building $14,000 $20,000 101,000 $ 4,000 Administrative office supplies (billing) Administrative office salaries 112,000 Direct materials used (wood, bolts, etc.) 427,000 Utilities, factory $45,000

Answer 1

1
	Cost Behavior		Selling or Administrative	Product cost
	Variable	Fixed	Cost	Direct	Indirect
Direct labor	90000			90000
Advertising		101000	101000
Factory supervision		71000			71000
Property taxes, factory building		19000			19000
Sales commissions	60000		60000
Insurance, factory		6000			6000
Depreciation, administrative office equipment		2000	2000
Lease cost, factory equipment		14000			14000
Indirect materials, factory	20000				20000
Depreciation, factory building		101000			101000
Administrative office supplies (billing)	4000		4000
Administrative office salaries		112000	112000
Direct materials used (wood, bolts, etc.)	427000			427000
Utilities, factory	45000				45000
Total costs	646000	426000	279000	517000	276000
2
Direct Product cost	517000
Indirect Product cost	276000
Total product cost	793000
Divide by Number of pianos	4000
Average product cost	198	per set
3
The average product cost per set would increase