Question

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

Answer 1

1.

			Selling and administrative cost	Product cost
	Variable	Fixed		Direct	Indirect
Direct labor	$89,000			$89,000
Advertising		98,000	$98,000
Factory supervision		65,000			65,000
Property taxes, factory building		21,000			21,000
Sales commission	61,000		61,000
Insurance factory		8,000			8,000
Depreciation, administrative office equipment		2,000	2,000
Lease cost, factory equipment		18,000			18,000
Indirect materials, factory	18,000				18,000
Depreciation, factory building		105,000			105,000
Administrative office supplies (billing)	6,000		6,000
Administrative office salaries		106,000	106,000
Direct material used (wood, bolts etc)	429,000			429,000
Utilities, factory	41,000				41,000
Total	$644,000	$423,000	$273,000	$518,000	$276,000

2.

Average product cost of one patio set = $518,000 + 276,000 / 4,000 = $198.5

3.

Average product cost per set would increase if production drops to only 1,000 sets.