Heritage Company manufactures a beautiful bookcase that is very popular. The company has sufficient demand to keep production going indefinitely at the plant's full capacity of 5,000 bookcases per year. Annual cost data at full capacity follow: Direct materials used (wood and glass) $435,000 General office salaries 111,000 Factory supervision 77,000 Sales commissions 62,000 Depreciation, factory building 110,500 Depreciation, office equipment 2,300 Indirect materials, factory 19,000 Factory labour (cutting and assembly) 95,000 Advertising 110,000 Insurance, factory 6,500 General office supplies (billing) 4,700 Property taxes, factory 22,000 Utilities, factory 50,000 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 either variable or fixed with respect to the number of units produced and sold and, second, as either 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.) Cost Behavior Selling or Administrative Cost Product Cost Direct Indirect Variable Fixed Cost Item Direct materials used (wood and glass) General office salaries Factory supervision Sales commissions Depreciation, factory building Depreciation, office equipment Indirect materials, factory Factory labour (cutting and assembly) Advertising Insurance, factory General office supplies (billing) Property taxes, factory Utilities, factory Total costs $ $ 0 $ 0 $ 0 $ 0 $ 0 2. Compute the average product cost per bookcase. Average product cost per bookcase 3. Due to a recession, assume that production drops to only 2,500 bookcases per year. Would you expect the average product cost per bookcase to increase, decrease, or remain unchanged? O Increase O Decrease O Remain unchanged 4. Refer to the original data. The president's next-door neighbour has considered making herself a bookcase and has priced the necessary materials at a building supply store. As an alternative, she has asked the president whether she could purchase a bookcase from the Heritage Company at cost," and the president has agreed to let her do so. a-1. Would you expect any disagreement between the two over the price the neighbour should pay? Yes O No a-2. What cost does the president have in mind? (Select all that apply.) Administrative cost Selling cost Direct product cost Indirect product cost a-3. What price does the neighbour probably have in mind? (Select all that apply.) Administrative cost Selling cost Direct product cost Indirect product cost b. Since 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 neighbour and still be selling "at cost"? O Opportunity cost O Sunk cost O Differential cost
