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 4,100 sets per year. Annual cost data at full capacity follow:

Direct labor	$	86,000
Advertising	$	98,000
Factory supervision	$	72,000
Property taxes, factory building	$	21,000
Sales commissions	$	56,000
Insurance, factory	$	8,000
Depreciation, administrative office equipment	$	3,000
Lease cost, factory equipment	$	15,000
Indirect materials, factory	$	20,000
Depreciation, factory building	$	104,000
Administrative office supplies (billing)	$	6,000
Administrative office salaries	$	105,000
Direct materials used (wood, bolts, etc.)	$	426,000
Utilities, factory	$	49,000

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?

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

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.)

Cost Behavior Period (Selling or Administrative) Cost Product Cost Cost Item Variable Fixed Direct Indirect 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 Total costs $0 $0 $0 $0 $0

• Compute the average product cost of one patio set. (Round your final answer to nearest whole dollar.)

  	Average product cost per set

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?

	Increase Decrease. Remain unchanged.

Answer 1

1
	Cost behavior		Selling or administrative	Product cost
	Variable	Fixed	Cost	Direct	Indirect
Direct labor	86000			86000
Advertising		98000	98000
Factory supervision		72000			72000
Property taxes, factory building		21000			21000
Sales commissions	56000		56000
Insurance, factory		8000			8000
Depreciation, administrative office equipment		3000	3000
Lease cost, factory equipment		15000			15000
Indirect materials, factory	20000				20000
Depreciation, factory building		104000			104000
Administrative office supplies (billing)	6000		6000
Administrative office salaries		105000	105000
Direct materials used (wood, bolts, etc.)	426000			426000
Utilities, factory	49000				49000
Total costs	643000	426000	268000	512000	289000
2
Average product cost of one patio set	195	=(512000+289000)/4100
3
Average product cost per set would increase