The Dorilane Company produces a set of wood patio furniture consisting of a tabl

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 3,800 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 Indirect materials, factory Depreciation, factory building Administrative office supplies (billing) Administrative office salaries Direct materials used (wood, bolts, etc. Utilities, factory $ 93,000 $ 99,000 $ 66,000 $ 19,000 $ 57,000 $ 7,000 $ 3,000 $ 20,000 $ 21,000 $. 110,000 $4,000 $. 108,000 $ 428,000 $ 49,000 cost, factory equipment 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.

Explanation / Answer

cost Behaviour period product cost Variable Fixed (sell&adm) Direct indirect cost Item Direct labor 93,000 93,000 Advertising 99,000 99,000 Factory supervision 66,000 66,000 Prpoerty taxes,Factory building 19,000 19,000 Sales commissions 57,000 57,000 insurance factory 7,000 7,000 Depreciation,administrative office equipment 3,000 3,000 lease cost,factory equipment 20,000 20,000 indirect materials,factory 21,000 21000 Depreciation,factory building 110,000 110,000 Administrative office supplies(billing) 4,000 4,000 Adminsitrative office Salaries 108,000 108,000 Direct materials used 428,000 428,000 Utilities,factory 49,000 49,000 total costs 652,000 432000 271000 521,000 292000 2) Average product cost = (521000+292000)/3800 214 3) increase (this is beacause there are less units to absorp the cost)

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