case 1-1 Cost classification and cost behavior. 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 labour $118,000, Advertising $50,000 Factory supervision $40,000 etc Prepare an answer sheet with the column headings shown
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 brother-in-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 brotherin-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-inlaw and still be selling "at cost"? Appendix 1A: Cost of Quality A company may have a product with a high-quality design that uses highnents, but if the product is poorly assembled or has other defects, the company are unlikely to buy the product a dissatisfied customers. People who are dissatisfied This is the worst possible sort of advertise often tell others about their bi a great deal of effort to reduce defects. Thertising. To prevent such problems, con Quality of Conformance quality costs and explain how A product that meets or exceeds is they interact ish its appearance or or exceeds its design specifications and is free of defic Note that if an economy degrade its performance is said to have high quality of just as high as a defect-free luxury of defects, it can have a quality of confo cars to be as defects. a. If Dozier had produced 1,001 units instead of 1,000 units, how much incremental manufacturing cost would it have incurred to make the additional unit? CASE 1-1 Cost Classification and Cost Behavior LO1-1, LO1-2, LO1-3, LO1-4 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: 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 brother-in-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 brotherin-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-inlaw and still be selling "at cost"? Appendix 1A: Cost of Quality A company may have a product with a high-quality design that uses highnents, but if the product is poorly assembled or has other defects, the company are unlikely to buy the product a dissatisfied customers. People who are dissatisfied This is the worst possible sort of advertise often tell others about their bi a great deal of effort to reduce defects. Thertising. To prevent such problems, con Quality of Conformance quality costs and explain how A product that meets or exceeds is they interact ish its appearance or or exceeds its design specifications and is free of defic Note that if an economy degrade its performance is said to have high quality of just as high as a defect-free luxury of defects, it can have a quality of confo cars to be as defects. a. If Dozier had produced 1,001 units instead of 1,000 units, how much incremental manufacturing cost would it have incurred to make the additional unit? CASE 1-1 Cost Classification and Cost Behavior LO1-1, LO1-2, LO1-3, LO1-4 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
