Question

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 3,900 sets per year. Annual cost data at full capacity follow:

Direct labor	$	85,000
Advertising	$	101,000
Factory supervision	$	65,000
Property taxes, factory building	$	21,000
Sales commissions	$	55,000
Insurance, factory	$	8,000
Depreciation, administrative office equipment	$	2,000
Lease cost, factory equipment	$	16,000
Indirect materials, factory	$	19,000
Depreciation, factory building	$	103,000
Administrative office supplies (billing)	$	5,000
Administrative office salaries	$	106,000
Direct materials used (wood, bolts, etc.)	$	431,000
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 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

Answer Page: No Cost behavior Selling & Product cost administi variable fixed -ative Direct Indirect Costa Direct labor #85000 $85000 Advertising $101,000 $101,000 Factory supervision $65000 $65000 Property taxes, factory building $21,000 $21,000 Sales commissions 55000 $55000 Insurance , factory $8000 $8000 Depreciation, adminstrative $2000 42000 office equipment leax cost, factory equipment $16000 $ 16000 Indirect materials, fachry $19000 $19000 deprecation, factory building $103000 Administrative office supplies 55000 $5000 (billing) Administrative office salaries $106000 $106000 Direct materials used (wad, belly) 6431000 $431000 utilities, factory $50,000 Total costs $645000 $422000 $269000 $516 000 $282000 516000 +282000 ® Average product cost of one patio set 3900 setas - $204.6 = 19 205 perset, 3 Average product cost per set would increase The fixed cost remains at the same level even if there is a decrease in sets produed. $103000 etc 1550,000