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:
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Direct labor
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$91,000
|
|
Advertising
|
$99,000
|
|
Factory supervision
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$66,000
|
|
Property taxes, factory building
|
$19,000
|
|
Sales commissions
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$57,000
|
|
Insurance, factory
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$6,000
|
|
Depreciation, administrative office equipment
|
$2,000
|
|
Lease cost, factory equipment
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$20,000
|
|
Indirect materials, factory
|
$20,000
|
|
Depreciation, factory building
|
$101,000
|
|
Administrative office supplies (billing)
|
$4,000
|
|
Administrative office salaries
|
$114,000
|
|
Direct materials used (wood, bolts, etc.)
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$427,000
|
|
Utilities, factory
|
$48,000
|
Required:
Question 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).
Question 2: Compute the average product cost of one patio set.
Question 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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