Job Order Costing The Company produces a set of dining room furniture consisting of a table and four chairs. The company has enough customer demand to justify producing its full capacity of 3,600 sets per year. Annual cost data at full capacity follow.

Direct labor $ 887,000

Advertising $ 99,000

Factory supervision $ 73,000

Property taxes, factory building $ 18,000

Sales commissions $ 63,000

Insurance, factory $ 7,000

Depreciation, administrative office equipment $ 3,000

Lease cost, factory equipment $ 14,000

Indirect materials, factory $ 20,000

Depreciation, factory building $ 112,000

Administrative office supplies (billing) $ 5,000

Administrative office salaries $ 106,000

Direct materials used (wood, bolts, etc.) $ 432,000

Utilities, factory $ 50,000

Required: 1. Prepare a spreadsheet listing each cost item and identifying it in the appropriate categories: Cost Behavior (Variable or Fixed), Period (Selling/Administrative), Product Cost (Direct or Indirect). Enter the dollar amount of each cost item under the appropriate headings and total the column amounts. 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 dining 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.

4. Refer to the original data. The president's brother is a finish carpenter and has considered making himself a dining set and has priced the necessary materials at a woodworker's supply store. The brother has asked the president if he could purchase a dining set from the 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 should pay? Explain. What price does the president probably have in mind? The brother?

b. Because the company is operating at full capacity, what cost practice might be justification for the president to charge the full, regular price to the brother and still be selling "at cost"?