Milden Company is a merchandiser that plans to sell 12,000 units during the next quarter at a selling price of $100 per unit. The company also gathered the following cost estimates for the next quarter:

Cost Cost of good sold...... Advertising expense..... Sales commissions. Shipping expense.. Cost Formula $35 per unit sold $210,000 per quarter 6% of sales $28,000 per quarter + $9.10 per unit sold Administrative salaries $145,000 per quarter Cost Insurance expense. Cost Formula $9,000 per quarter Depreciation expense.... $76,000 per quarter Required:
1. Prepare a contribution format income statement for the next quarter.
2. Prepare a traditional format income statement for the next quarter.

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 2,000 sets per year. Annual cost data at full capacity follow:

Direct labor.. $118,000 Advertising... $50,000 Factory supervision.... $40,000 Property taxes, factory $3,500 building Sales commissions.. $80,000 Insurance, factory.. $2,500 Depreciation, administrative office $4,000 equipment Lease cost, factory $12,000 equipment Indirect materials, factory. $6,000 Depreciation, factory $10,000 building Administrative office $3,000 supplies (billing) Administrative office $60,000 salaries Direct materials used $94,000 (wood, bolts, etc.) Utilities, factory.. $20,000 Required:
1. Prepare an answer sheet with the column headings shown below. Enter each cost item on your answer sheet, placing the dollar amount under the appropriate headings. As examples, this has been done already for the first two items in the list above. 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 as shown.)

2. Total the dollar amounts in each of the columns in (1)
above. 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? Explain. No computations are necessary.
4. Refer to the original data. The president’s brother-in-law has considered making himself a patio set and has priced the necessary materials at a building supply store. The brotherin-
law has asked the president if he could purchase a patio set from the Dorilane Company “at cost,” and the president agreed to let him do so.

a. Would you expect any disagreement between the two men over the price the brother-in-law should pay?
Explain. What price does the president probably have in mind? The brother-in-law?

b. Because the company is operating at full capacity, what cost term used in the chapter might be justification for the president to charge the full, regular price to the brother-in-law and still be selling “at cost”?