Question

Please answer the questions below.

CASE 1-26 Cost Classification and Cost Behavior L01-1, L01-2, L01-3, 101-4 The Dorilane Company produces a set of wood patio furniture consisting of a table and four chairs. The company has enough customer demand to justify producing its full capacity of 2,000 sets per year. Annual cost data at full capacity follow: Direct labor Advertising.......... Factory supervision ........... Property taxes, factory building.......... Sales commissions.... Insurance, factory. Depreciation, administrative office equipment.... Lease cost, factory equipment. . . . . . . . . . . . . . . . . . . Indirect materials, factory ........................ Depreciation, factory building.................... Administrative office supplies (billing).............. Administrative office salaries . . . . . . . . . . . . . . . . ..... Direct materials used (wood, bolts, etc.)....... Utilities, factory ........... $118,000 $50,000 $40,000 $3,500 $80,000 $2,500 $4,000 $12,000 $6,000 $10,000 $3,000 $60,000 $94,000 $20,000 Required: 1. Prepare an answer sheet with the column headings shown below. Enter each cost item on your answer sheet, placing the dollar amount under the appropriate headings. As examples, this has been done already for the first two items in the list above. 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.) Cost Behavior Variable Fixed Period (Selling or Administrative) Cost Cost Item Product Cost Direct Indirect" $118,000 $118,000 Direct labor ...... Advertising....... $50,000 $50,000 * To units of product.

The Dorilane Company produces a set of wood patio furniture consisting of a table and four chairs. The company has enough customer demand to justify producing its full capacity of 2,000 sets per year. Annual data cost is provided. Please answer all questions.

Answer 1

			Cost Behaviour		Period	Product Cost
			Variable	Fixed	Cost	Direct	Indirect
		Direct labor	$118,000			$118,000
		Advertising		$50,000	$50,000
		Factory supervision		$40,000			$40,000
		Property taxes,factory building		$3,500			$3,500
		Sales commissions	$80,000		$80,000
		Insurance,factory		$2,500			$2,500
		Depreciation,administrative office Equipment		$4,000	$4,000
		Lease cost,factory equipment		$12,000			$12,000
		Indirect materials, factory	$6,000				$6,000
		Depreciation ,Factory building		$10,000			$10,000
		Administrative office supplies(billing)	$3,000		$3,000
		Administrative Office Salaries		$60,000	$60,000
		Direct Materials Used(wood, bolts etc)	$94,000			$94,000
		Utilities, factory	$20,000				$20,000
	A	Total	$321,000	$182,000	$197,000	$212,000	$94,000
	B=A/2000	Average Cost for One Set	$161	$91	$99	$106	$47
	2	Average Product Cost Direct	$106
		Average Product Cost In- Direct	$47
		Average Total Product Cost	$153
	3	If production drops to 1000 units, Fixed Cost per unit will increase
		Hence, Average Product Cost per unit will increase