Question 4 (30 marks)

The Outdoor Plus 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 2,400 sets per year. Annual cost data at full capacity is given as follows:

Direct Labour $141,600

Advertising $60,000

Factory supervision $48,000

Property taxes, factory building $4,200

Sales commissions $96,000

Insurance, factory $3,000

Depreciation, administrative office equipment $4,800

Lease cost, factory equipment $14,400

Indirect materials, factory $7,200

Depreciation, factory building $12,000

Administrative office supplies (billing) $3,600

Administrative office salaries $72,000

Direct materials used (wood, bolts, etc.) $112,800

Utilities, factory $24,000

Required:

1. a) 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. 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). Total the dollar amounts in each of the columns. Compute the average production cost of one patio set. (Chapter 2, 20 marks)

Cost Item	Cost Behaviour	Period (Selling and Administrative) Cost	Product Cost
Variable	Fixed	Direct	Indirect

2. Assume that production drops to only 1200 sets annually. Would you expect the average product cost per set to increase, decrease or remain unchanged? Explain. No computations are necessary.

Question 4 (30 marks) The Outdoor Plus 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 2,400 sets per year. Annual cost data at full capacity is given as follows: Direct Labour $141,600 Advertising $60,000 Factory supervision $48,000 Property taxes, factory building $4,200 Sales commissions $96,000 Insurance, factory $3,000 Depreciation, administrative office equipment $4,800 Lease cost, factory equipment $14,400 Indirect materials, factory $7,200 Depreciation, factory building $12,000 Administrative office supplies (billing) $3,600 Administrative office salaries $72,000 Direct materials used (wood, bolts, etc.) $112,800 Utilities, factory $24,000 Required: a) 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. 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). Total the dollar amounts in each of the columns. Compute the average production cost of one patio set (Chapter 2, 20 marks) Cost Item Cost Behaviour Period (Selling and Product Cost Variable Fixed Administrative) Cost Direct Indirect b) Assume that production drops to only 1200 sets annually. Would you expect the average product cost per set to increase, decrease or remain unchanged? Explain. No computations are necessary. (Chapter 2, 10 marks)