P2-14 Cost Identification Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity. The company has a backlog of orders that is large enough to keep production going indefinitely at the plant's full capacity of 4,000 bookcases per year. Annual cost data at full capacity follow: Materials used (wood and glass) General office salaries Factory supervision Sales commissions $430,000 110,000 70,000 60,000 Depreciation, factory building 105.000 Depreciation, office equipment 2,000 Indirect materials, factory 18,000 Factory labor (cutting and assembly) 90,000 Advertising 100,000 Insurance, factory 6,000 General office supplies (hilling) 4,000 20,000 Property taxes, factory Utilities, factory.... 45,000/ 1060 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 cach cost item is classified in two ways: first, as being either variable or fixed; and second, as being either a selling and administrative cost or a product cost. (If the item is a product cost, it should be classified as being either direct or indirect as shown.) Cost Behavior Selling or Administrative Product Cost Cost Item Variable Fixed Cost Materials used $430,000 Direct $430,000 Indirect General office salaries $110,000 $110,000 "To units of product. Terms, Systems Design, and Cost Behavior 2. Total the dollar amounts in each of the columns in (1) above. Compute the cost to pro- duce one bookcase. 3. Due to a recession, assume that production drops to only 2,000 bookcases per year. Would you expect the cost per bookcase to increase, decrease, or remain unchanged? Explain. No computations are necessary. 4. Refer to the original data. The president's next-door neighbor has considered making himself a bookcase and has priced the necessary materials at a building supply store. He has asked the president whether he could purchase a bookcase from the Heritage Com- pany "at cost," and the president has agreed to let him do so. a. Would you expect any disagreement between the two men over the price the neigh- bor should pay? Explain. What price does the president probably have in mind? The neighbor? 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 neigh- bor and still be selling "at cost"? Explain.