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The D Company produces a wood patio furniture set consisting of a table and four chairs. The company has enough customer demand to justify producing
The D Company produces a wood patio furniture set consisting of a table and four chairs. The company has enough customer demand to justify producing its full capacity of 3,800 sets per year. Annual cost data at full capacity follow: Direct labor Advertising Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation, administrative office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building Administrative office supplies (billing) Administrative office salaries Direct materials used (wood, bolts, etc.) Utilities, factory S 92,000 $101,000 70,000 17,000 $ 57,000 $ 7,000 S 3,000 S 18,000 S 20,000 $110,000 S 4,000 $110,000 $429,000 S 45,000 Required: 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 1. also be classified as either direct or indirect.) Period -Selling or Cost Behavior Administrative Product Cost Cost Cost Item Variable Fixed Direct Indirect Direct labor Advertising Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation, administrative office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building Administrative office supplies (billing) Administrative office salaries Direct materials used (wood, bolts, etc.) Utilities, factory Total costs Compute the average product cost of one patio set at full capacity 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? Why? Average cost per set would be? 3
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