The Dorilane Company specializes in producing a set of wood patio furniture cons

Question

The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 4,100 sets per year. Annual cost data at full capacity follow:

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. (Round your answer to nearest whole dollar.)

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?

The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 4,100 sets per year. Annual cost data at full capacity follow:

Explanation / Answer

1) Cost Behavior Selling or Administrative cost Product Cost Variable Fixed Direct Indirect Direct labor 93,000 93,000 Advertising 96,000 96,000 Factory supervision 71,000 71,000 Property taxes, factory building 25,000 25,000 Sales commissions 64,000 64,000 Insurance, factory 5,000 5,000 Depreciation, administrative office equipment 2,000 2,000 Lease cost, factory equipment 11,000 11,000 Indirect materials, factory 18,000 18,000 Depreciation, factory building 1,04,000 1,04,000 Administrative office supplies (billing) 4,000 4,000 Administrative office salaries 1,14,000 1,14,000 Direct materials used (wood, bolts, etc.) 4,26,000 4,26,000 Utilities, factory 46,000 46,000 Total 6,51,000 4,28,000 2,80,000 5,19,000 2,80,000 2) Average product cost of one patio set = (519000+280000)/4100 = $194.88 3) If the production drops to only 1,000 sets annually, then the average product cost per set will increase (ie. $194.88 to $799 ((519000+280000)/1000))

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