Question

The Mahela Company specializes in producing sets of wooden patio furniture consisting of a table and four chairs. The company has ample orders to keep production going at its full capacity of 2,200 sets per quarter. Quarterly cost data at full capacity follow:

Factory labour, direct	$	119,000
Advertising		50,200
Factory supervision		40,200
Property taxes, factory building		3,700
Sales commissions		81,000
Insurance, factory		2,700
Depreciation, office equipment		4,200
Lease cost, factory equipment		12,200
Indirect materials, factory		6,200
Depreciation, factory building		10,200
General office supplies (billing)		3,200
General office salaries		61,000
Direct materials used (wood, bolts, etc.)		95,000
Utilities, factory		20,200

  

Cost Behaviour Selling and Administrative Cost Product Cost Cost Item Variable Fixed Direct Indirect* Factory labour, direct $119,000 $119,000 Advertising 50,200 50,200 Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation, office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building General office supplies (billing) General office salaries Direct materials used (wood, bolts, etc.) Utilities, factory Total costs *To units of product.

2.	Compute the average product cost per patio set. (Round your answer to 2 decimal places.)

Answer 1

Solution:-

	Cost Behaviour		Selling and Administrative Cost	Product Cost
Cost Item	Variable	Fixed		Direct	Indirect*
Factory labour, direct	$119,000			$119,000
Advertising		50,200	50,200
Factory supervision		40,200			40,200
Property taxes, factory building		3,700			3,700
Sales commissions	81,000		81,000
Insurance, factory		2,700			2,700
Depreciation, office equipment		4,200	4,200
Lease cost, factory equipment		12,200			12,200
Indirect materials, factory	6,200				6,200
Depreciation, factory building		10,200			10,200
General office supplies (billing)	3,200		3,200
General office salaries		61,000	61,000
Direct materials used (wood, bolts, etc.)	95,000			95,000
Utilities, factory	20,200				20,200
Total costs	324,600	184,400	199,600	214,000	95,400
*To units of product.

2. Compute the average product cost per patio set:-

Average product cost per patio set

$ 140.64 Per set

Explanation:-

Direct	214,000
Indirect	95,400
Total	309,400
Divide by number of sets	2,200
Average cost per set	140.64