In: Accounting
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 4,000 sets per year. Annual cost data at full capacity follow:
Direct labor | $ | 92,000 |
Advertising | $ | 101,000 |
Factory supervision | $ | 69,000 |
Property taxes, factory building | $ | 19,000 |
Sales commissions | $ | 61,000 |
Insurance, factory | $ | 5,000 |
Depreciation, administrative office equipment | $ | 2,000 |
Lease cost, factory equipment | $ | 15,000 |
Indirect materials, factory | $ | 19,000 |
Depreciation, factory building | $ | 110,000 |
Administrative office supplies (billing) | $ | 5,000 |
Administrative office salaries | $ | 115,000 |
Direct materials used (wood, bolts, etc.) | $ | 429,000 |
Utilities, factory | $ | 45,000 |
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.
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.)
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?
|
1.
Cost behavior | Period (selling or administrative cost) | Product cost | |||
Cost item | Variable | Fixed | Direct | Indirect | |
Direct labor | $92,000 | $92,000 | |||
Advertising | 101,000 | 101,000 | |||
Factory supervision | 69,000 | 69,000 | |||
Property taxes, factory building | 19,000 | 19,000 | |||
Sales commissions | 61,000 | 61,000 | |||
Insurance, factory | 5,000 | 5,000 | |||
Depreciation, administrative office equipment | 2,000 | 2,000 | |||
Lease cost, factory equipment | 15,000 | 15,000 | |||
Indirect materials, factory | 19,000 | 19,000 | |||
Depreciation, factory building | 110,000 | 110,000 | |||
Administrative office supplies, billing | 5,000 | 5,000 | |||
Administrative office salaries | 115,000 | 115,000 | |||
Direct materials used (woods, bolts, etc.) | 429,000 | 429,000 | |||
Utilities, factory | 45,000 | 45,000 | |||
Total costs | $651,000 | $436,000 | $284,000 | $521,000 | $282,000 |
2.
Average product cost = $521,000+282,000 / 4,000 = $200.75
3.
If production drops to 1,000 sets annually average product cost per set increases.