Case:The Dial 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 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 building- 3,500

Sale Commissions- 80,000

Insurance , Factory- 2,500

Depreciation, admin office equipment- 4,000

Lease cost, factory equipment- 12,000

Indirect Materials, factory-6,000

Depreciation, factory building- 10,000

Admin Office Supplies (billing)- 3,000

Admin Office salaries- 60,000

Direct Materials used wood bolts- 94,000

Utilities, factory- 20,000

The patio sets are normally sold for $400 per set.Dial can increase capacity by 1,000 units to 3,000 units but must pay $50,000 to do so.

Annual cost data for the production of 2,000 sets are classified as follows:

Cost Item Cost Behavior Selling or Admin Cost Product Cost

Variable Fixed Direct Indirect

Direct labor 118,000 $118,000

Advertising $50,000 $50,000

Factory supervision $40,000 $40,000

Property taxes, factory building $3,500 $3,500

Sales commissions $80,000 $80,000

Insurance, factory $2,500 $2,500

Depreciation, administrative office equipment $4,000 $4,000

Lease Cost, Factory Equipment $12,000 $12,000

Indirect Material, factory $6,000 $6,000

Depreciation, factory building $10,000 $10,000

Administrative office supplies $3,000 $3,000

Administrative office salaries $60,000 $60,000

Direct materials used $94,000 $94,000

Utilities, factory $20,000 $20,000

Total costs $321,000 $182,000 $197,000 $212,000 $94,000

Please contribution margin income statement at normal capacity and label the income statement as Figure 1. Please show the following format and show columns for totals and per unit.Assume that sales are priced at the normal price

1.

Sales Per Unit Total at 2,000 Units

Variable Costs

Contribution Margin

Fixed Costs

Operating Income

2)Do total fixed costs change for a relevant range of zero to 2,000 units?Why or why not?

What is the variable cost per unit and what are the total variable costs for 2,000 units?

Please explain your calculations and reference to the chart in Figure 1.

3) If demand for 2020 is instead 3,000 units should the company pay to increase their capacity?Why?Please explain your calculations and reference to the chart in Figure 1.Assume units are sold at the normal price.

Hint:If you expand capacity, you will have to pay additional fixed costs of $50,000.Remember that fixed costs are fixed within the relevant range.If you expand capacity then you are outside this range. If you expand capacity then you can make revenue on 1,000 additional units at the normal price and would pay variable costs on 1,000 additional units.Please consider the incremental profit or loss of expanding capacity.If the incremental profit of expanding capacity is positive then you should do so.

4)Assume sales and demand are 1,000 units, how much will the company make on the sale of the next unit (1,001^st)?Discuss which amounts on the income statement will change if the company makes and sells one more unit.Please discuss your calculations and reference to Figure 1.