Question

Heritage Company manufactures a beautiful bookcase that is very popular. The company has sufficient demand to keep production going indefinitely at the plant's full capacity of 5,000 bookcases per year. Annual cost data at full capacity follow: Direct materials used (wood and glass) $435,000 General office salaries 111,000 Factory supervision 77,000 Sales commissions 62,000 Depreciation, factory building 110,500 Depreciation, office equipment 2,300 Indirect materials, factory 19,000 Factory labour (cutting and assembly) 95,000 Advertising 110,000 Insurance, factory 6,500 General office supplies (billing) 4,700 Property taxes, factory 22,000 Utilities, factory 50,000 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 either variable or fixed with respect to the number of units produced and sold and, second, as either 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.)

Answer 1

Solution 1.

Cost Item Direct materials used (wood, glass) General office salaries Factory supervision Sales commissions Depreciation, factory building Depreciation, office equipment Indirect materials, factory Factory labor (cutting and assembly) Advertising Insurance, factory General office supplies (billing) Property taxes, factory Utilities, factory Total costs Selling or Cost Behavior Administrative Product Cost Variable Fixed Cost Direct Indirect $ 435,000 $ $ $ 435,000 $ $ 111,000 $ 111,000 $ 77,000 $ 77,000 $ 62,000 $ 62,000 $ 110,500 $ 110,500 $ 2,300 $ 2,300 $ 19,000 $ 19,000 $ 95,000 $ 95,000 $ 110,000 $ 110,000 $ 6,500 $ 6,500 $ 4,700 $ 4,700 $ 22,000 $ 22,000 $ 50,000 $ 50,000 $ 665,700 $ 439,300 $ 290,000 $ 530,000 $ 285,000

Solution 2

Average Product Cost =(Direct product cost + Indirect Product cost) / no. of bookcases

= (530,000 + 285,000)/ 5000 book case

= $815,000 / 5000

= $163 per book case.

Solution 3.

If production decreases average book Price

Increase

Solution 4a1)

Yes there will be disagreement between the prices

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