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 2,000 sets per year. Annual cost data at full capacity follows:
		Cost Behavior		Period (selling and administrative cost)	Product Cost
		Variable	Fixed		Direct	Indirect
Direct Labor	$118,000	$118,000			$118,000
Advertising	$50,000		$50,000	$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
Direct materials used (wood, bolts, etc.)	$94,000
Utilities, factory	$20,000
Total		$118,000	$50,000	$50,000	$118,000	$0
Above is an answer sheet that needs to be completed. Enter each cost item on your answer sheet by placing the dollar amount under the appropriate headings. As examples, this has been done already for the first two items in the list above. Notice how I used formulas instead of numbers in Cell C5, F5, D6 and E6. Your totals will be automatically calculated as I have a formulas added to row 19. 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.)
Compute the average product cost per one patio set.
Assume that production drops to only 1,000 set 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 president's brother in law has considering making himself 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 dorilan company "at cost," and the president agreed to let him do so.
Would you expect any disagreement between the two men over the price the brother in law should pay? Explain.
What does the president probably have in mind?
The brother-in-law?
The company is operating at full capacity, what cost term used in the chapter might be justification for the president to charge full regular price to the brother-in-law and still be selling at cost?