Problem $1$ Cost Classifications.

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 $4,000$ sets per year. Annual cost data at full capacity follow:

Direct labor $$88,000$

Advertising $$95,000$

Factory supervision $$68,000$

Property taxes, factory building $$25,000$

Sales commissions $$59,000$

Insurance, factory $$7,000$

Depreciation, administrative office equipment $$2,000$

Lease cost, factory equipment $$15,000$

Indirect materials, factory $$19,000$

Depreciation, factory building $$103,000$

Administrative office supplies $($billing$)$ $$3,000$

Administrative office salaries $$109,000$

Direct materials used $($wood$,$ bolts, etc.$)$ $$433,000$

Utilities, factory $$42,000$

Required:

In the table on the next page, enter the dollar amount of each cost item under the appropriate headings. 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.$)$

Place and sum the costs here

$\backslash$table$[[,$Cost Behavior,Product Cost,Period Cost,$],[,$Fixed,Variable,Direct,Indirect,Selling,Administrative$],[$Direct labor,,,,,,$],[$Advertising$,,,,,,],[$Factory supervision,,,,,,$],[\backslash$table$[[$Property taxes, factory$],[$building$]],,,,,,],[$Sales commissions,,,,,,$],[$Insurance$,$ factory,,,,,,$],[\backslash$table$[[$Depreciation$,],[$administrative office$],[$equipment$]],,,,,,],[\backslash$table$[[$Lease cost$,$ factory$],[$equipment$]],,,,,,],[$Indirect materials, factory,,,,,,$],[\backslash$table$[[$Depreciation$,$ factory$],[$building$]],,,,,,],[\backslash$table$[[$Administrative office$],[$supplies $($billing$)]],,,,,,],[\backslash$table$[[$Administrative office$],[$salaries$]],,,,,,],[\backslash$table$[[$Direct materials used$],[($wood$,$ bolts, etc.$)]],,,,,,],[$Utilities$,$ factory,,,,,,$],[$Totals$,,,,,,]]$

Problem $1($Continued$)$

Compute the average product cost of one patio set.

Assume production drops to only $1,000$ sets annually. Would you expect the average product cost per set to increase, decrease, or remain unchanged?