Problem 3: Cost Classification and Cost Behavior (30 Minutes Shulmans 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 full capacity of 3,900 bookcases per year . Annual cost data at full capacity follow : Direct materials used (wood glass $ 431,000 Administrativ office salaries $ 111,000 Factory supervision $ 67,000 Sales commissions $ 64,000 Depreciation , factory building $ 101,000 Depreciation administrative office equipment $ 2,000 Indirect materials , factory $ 19,000 Factory Tabor (cutting and assembly $ 87,000 Advertising $ 97,000 Insurance , factor $ 6,000 Administrative office supplies (billing $ 4,000 Property taxes , factory $ 16,000 Utilities , factory $ 44,000 Required 1 . Prepare an answer sheet with the column headings shown below . Enter each cost item on your answer sheet , placing the dollar amount the appropriate headings . As examples , this has been done already for the first two items in the list above . 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 r 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 as shown .) Cost Behavior Selling Product Cost Item Variable Fixed or Direct Indirect Admin Cost Direct materials (wood $ 431,000 $ 431,000 glass Administrative office salaries $ 111,000 $ 111,000 2. Total the dollar amounts in each of the columns in ( 1 ) above . Compute the average product cost per bookcase 3 . Due to a recession , assume that production drops to only 2,000 bookcases per year . Would you expect the average product 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 Shulmans Company "at cost," and the president has agreed to let him do so