Question

The Mahela Company specializes in producing sets of wooden patio furniture consisting of a table and four chairs. The company has ample orders to keep production going at its full capacity of 3,500 sets per quarter. Quarterly cost data at full capacity follow: Factory labour, direct Advertising Factory supervision roperty taxes, factory building Sales commissions Insurance, factory Depreciation, office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building General office supplies (billing) General office salaries Direct materials used (wood, bolts, etc.) Utilities, facto $125,500 51,500 41,500 5,000 87,500 4,000 5,500 13,500 7,500 11,500 4,500 67,500 101,500 21,500 Required 1. Enter the dollar amount of each cost item under the appropriate headings. As examples, this has been done already for the first two items in the preceding list. 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 as shown.)

Answer 1

Part 2

The average product cost for one patio set would be:

Direct costs	227000
Indirect costs	104500
Total costs	331500
Total number of sets	3500
Average product cost per patio set	94.71

Therefore,

Average product cost

$94.71

per patio set

Part 3

Answer is option A Increase

Due to dropping production by 1000 units, there would be increase in average product cost per set because the fixed costs would be spread among less number of units and thus there will be increase in average cost.

Part 4

Yes,

the president may expect a minimum price of

$94.71