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 follow:

Direct labor	$	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
Direct materials used (wood, bolts, etc.)	$	94,000
Utilities, factory	$	20,000

Required:

1. 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 also be classified as either direct or indirect.)

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 also be classified as either direct or indirect.)

	Cost Behavior		Period (Selling or Administrative) Cost	Product 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	$0	$0	$0	$0	$0

2. Compute the average product cost of one patio set.

Compute the average product cost of one patio set.

Average product cost

per set

3. 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?

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?

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