he Dorilane Company specializes in producing a set of wood patio furniture consi

Question

he 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 4,000 sets per year. Annual cost data at full capacity follow: Direct labor $ 91,000 Advertising $ 105,000 Factory supervision $ 70,000 Property taxes, factory building $ 21,000 Sales commissions $ 56,000 Insurance, factory $ 8,000 Depreciation, administrative office equipment $ 3,000 Lease cost, factory equipment $ 18,000 Indirect materials, factory $ 17,000 Depreciation, factory building $ 102,000 Administrative office supplies (billing) $ 6,000 Administrative office salaries $ 108,000 Direct materials used (wood, bolts, etc.) $ 427,000 Utilities, factory $ 41,000 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. (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? Increase Decrease Remain unchanged

Explanation / Answer

Element of cost Amount Heading Advertising $1,05,000 Fixed Factory supervision $70,000 Fixed Property taxes, factory building $21,000 Fixed Insurance, factory $8,000 Fixed Depreciation, administrative office equipment $3,000 Fixed Lease cost, factory equipment $18,000 Fixed Depreciation, factory building $1,02,000 Fixed Administrative office salaries $1,08,000 Fixed Total $4,35,000 Variable cost Direct labor $91,000 Variable Sales commissions $56,000 Variable Indirect materials, factory $17,000 Variable Administrative office supplies (billing) $6,000 Variable Direct materials used (wood, bolts, etc.) $4,27,000 Variable Utilities, factory $41,000 Variable Total Variable cost $6,38,000 Element of cost Amount Heading Subheading Direct labor $91,000 Product cost Direct Factory supervision $70,000 Product cost Direct Direct materials used (wood, bolts, etc.) $4,27,000 Product cost Direct Utilities, factory $41,000 Product cost Direct Property taxes, factory building $21,000 Product cost Indirect Insurance, factory $8,000 Product cost Indirect Lease cost, factory equipment $18,000 Product cost Indirect Indirect materials, factory $17,000 Product cost Indirect Depreciation, factory building $1,02,000 Product cost Indirect $7,95,000 Element of cost Amount Heading Advertising $1,05,000 selling and administrative cost Sales commissions $56,000 selling and administrative cost Depreciation, administrative office equipment $3,000 selling and administrative cost Administrative office supplies (billing) $6,000 selling and administrative cost Administrative office salaries $1,08,000 selling and administrative cost Element of cost Amount Heading Subheading Direct labor $91,000 Product cost Direct Factory supervision $70,000 Product cost Direct Direct materials used (wood, bolts, etc.) $4,27,000 Product cost Direct Utilities, factory $41,000 Product cost Direct Property taxes, factory building $21,000 Product cost Indirect Insurance, factory $8,000 Product cost Indirect Lease cost, factory equipment $18,000 Product cost Indirect Indirect materials, factory $17,000 Product cost Indirect Depreciation, factory building $1,02,000 Product cost Indirect $7,95,000 Element of cost Amount Heading Subheading Direct labor $91,000 Product cost Direct Factory supervision $70,000 Product cost Direct Direct materials used (wood, bolts, etc.) $4,27,000 Product cost Direct Utilities, factory $41,000 Product cost Direct Property taxes, factory building $21,000 Product cost Indirect Insurance, factory $8,000 Product cost Indirect Lease cost, factory equipment $18,000 Product cost Indirect Indirect materials, factory $17,000 Product cost Indirect Depreciation, factory building $1,02,000 Product cost Indirect $7,95,000 Nos of sets 4,000 Average cost      198.75 the average cost will increase if the production will come down

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