Q 4 The D C specializes in producing the set of wood patio furniture consisting off a table and four chairs The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 2,000 sets per year Annual cost data at full capacity follow Factory labor, direct Rs 118,000 Advertising 50,000 Factory supervision 40,000 Property taxes, factory building 3,500 Sales commissions 80,000 Insurance, factory 2,500 Depreciation, administrative office equipment 4,000 Lease Cost, factory equipment 12,000 Indirect materials , factory 6,000 Depreciation, factory building 10,000 Administrative office supplies (billing) 3,000 Administrative office salaries 60,000 Directs materials used (wood, bolts, etc) 94,000 Utilities, factory 20,000 Required Prepare an answer sheet with the column headings shown below Enter each cost item on your answer sheet, placing the rupees amount under 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 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 as shown) Cost item Cost Behavior Selling or administrative Product cost Variable Fixed Cost Direct Indirect Factory labor direct Rs 116,000 Rs 118,000 Advertising Rs 50,000 Rs 50,000 To units of product Total the rupee amounts in each of columns in (1) above Compute the average product cost of one Patio set 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 No computations are necessary Refer to the original data The presidents brother in law has considered making him self a patio set and has priced the necessary materials at a building supply store The brother in law has asked the president, if he could purchase a patio set from the D C at cost , and the president agreed to let him do so Would you expect any disagreement between the two man over the price the brother in law should pay Explain What price does the president have in mind The brother in law b Because 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 brother in law and still be selling at cost

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Q.4. The D.C specializes in producing the set of wood patio furniture consisting off a table and four chairs. The set enjoys great popularity, and

Q.4. The D.C specializes in producing the set of wood patio furniture consisting off a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 2,000 sets per year. Annual cost data at full capacity follow:

Factory labor, direct Rs. 118,000

Advertising 50,000

Factory supervision 40,000

Property taxes, factory building 3,500

Sales commissions 80,000

Insurance, factory 2,500

Depreciation, administrative office equipment 4,000

Lease Cost, factory equipment 12,000

Indirect materials , factory 6,000

Depreciation, factory building 10,000

Administrative office supplies (billing) 3,000

Administrative office salaries 60,000

Directs materials used (wood, bolts, etc) 94,000

Utilities, factory 20,000

Required:

Prepare an answer sheet with the column headings shown below. Enter each cost item on your answer sheet, placing the rupees amount under 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 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 as shown)

Cost item Cost Behavior Selling or administrative Product cost .

Variable Fixed Cost Direct Indirect*

Factory labor direct Rs. 116,000 Rs. 118,000

Advertising Rs. 50,000 Rs. 50,000

*To units of product

Total the rupee amounts in each of columns in (1) above. Compute the average product cost of one Patio set.
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. No computations are necessary.
Refer to the original data. The presidents brother-in-law has considered making him self a patio set and has priced the necessary materials at a building supply store. The brother-in-law has asked the president, if he could purchase a patio set from the D.C at cost , and the president agreed to let him do so.

Would you expect any disagreement between the two man over the price the brother-in-law should pay? Explain. What price does the president have in mind ? The brother-in-law?

b. Because 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 brother-in-law and still be selling at cost ?