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 2,000 sets per year. Annual cost data at full capacity follow:
Direct labor
Advertising
Factory supervision
Property taxes, factory building
Sales commissions
Insurance, factory
Depreciation, administrative office equipment
Lease cost, factory equipment
Indirect materials, factory
Depreciation, factory building
Administrative office supplies (billing)
Administrative office salaries
Direct materials used (wood, bolts, etc.)
Utilities, factory
$ 118,000
$ 50,000
$ 40,000
$ 3,500
$80,000
$ 2,500
$ 4,000
$ 12,000
$ 6,000
$ 10,000
$ 3,000
$ 60,000
$ 94,000
$ 20,000
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?