The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 4,200 sets per year. Annual cost data at full capacity follow:
| |
| Direct labor |
$ |
87,000 |
| Advertising |
$ |
99,000 |
| Factory supervision |
$ |
72,000 |
| Property taxes, factory building |
$ |
21,000 |
| Sales commissions |
$ |
62,000 |
| Insurance, factory |
$ |
5,000 |
| Depreciation, administrative office equipment |
$ |
2,000 |
| Lease cost, factory equipment |
$ |
17,000 |
| Indirect materials, factory |
$ |
17,000 |
| Depreciation, factory building |
$ |
102,000 |
| Administrative office supplies (billing) |
$ |
4,000 |
| Administrative office salaries |
$ |
113,000 |
| Direct materials used (wood, bolts, etc.) |
$ |
435,000 |
| Utilities, factory |
$ |
50,000 |
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| 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.)
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| 2. |
Compute the average product cost of one patio set. (Round your answer to nearest whole dollar.)
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| 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?
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Increase |
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Decrease |
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Remain unchanged |
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