Identifying Costs, Cost Concepts (LO1 - CC1; LO2 - CC2; LO4 - CC4, 6) The Mahela

Question

Identifying Costs, Cost Concepts (LO1 - CC1; LO2 - CC2; LO4 - CC4, 6) 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 3,400 sets per quarter. Quarterly cost data at full capacity follow: Please help me with question #4 Problem 2-3 Identifying Costs, Cost Concepts (L01 - CC1; LO2 - CC2; LO4 - CC4, 6) 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 3,400 sets per quarter. Quarterly cost data at full capacity follow: Factory labour, direct Advertising 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.) 101,000 Utilities, factory $ 125,000 51,400 41,400 4,900 87,000 3,900 5,400 13,400 7,400 11,400 4,400 67,000 21,400

Explanation / Answer

Yes, the president may expect a minimum price of $97, which is the average cost to manufacture one set. He might expect a price even higher than this to cover a portion of the administrative costs as well. The brother-in-law probably is thinking of cost as including only direct materials, or, at most, direct materials and direct labor.

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