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:

Required: 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. 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.)

2. Total the dollar amounts in each of the columns in (1) above. Compute the average product cost of one patio set.

3. Assume 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.

4. Refer to the original data. The president's brother-in-law considered making himself a patio a building supply store. The brother-in-law asked set and priced the necessary materials the president if he could purchase a patio set from the Dorilane Company "at cost," and the president agreed to let him do so.

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

b. Because the company is operating at full capacity, what cost term used in the chapter might justify the president charging the full, regular price to the brother-in-law and still be selling "at cost"?

Select cases are available in Connect. CASE 1-26 Cost Classification and Cost Behavior LO1-1, LO1-2, LO1-3, 101-4 The Dorilane Company produces a set of wood patio furniture consisting of a table and four chains. The company has enough customer demand to justify producing its full capacity of 2,000 sets per year. Anaual cost data at full capscity follow: Direct labor Advertising Foctory supervision Property taxes, factory buliding Sales commissions Insurance, factory Depreciation, administrative office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building Administrative office supplies (billing) Administrathe office salaries Direct materials used (wood, boits, etc) Utilities, factory $118,000 $50,000 $40,000 $3,500 $80,000 $2,500 $4,000 $12,000 $6,000 $10,000 $3,000 $60,000 $94,000 $20,000 Required: 1. 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 beadings: As examples, this has been done already for the first two items in the list above. Note that each cost item is classificd 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.) To units of product. 2. Total the dollar amounts in each of the columns in ( 1 ) above. Compute the average product cost of one patio set. 3. Assume production drops to only 1,000 sets annually. Would you expect the average prodact cost per set to increase, decrease, or remain unchanged? Explain. No computations are necescary. 4. Refer to the original data. The president's brother-in-law considered making himself a patio set and priced the necessary materials at a building supply store. The brother-is-law asked the president if he could purchase a patio set from the Dorilane Company "at cost," and the president agreed to let him do 50 . a. Would you expect any disagreement between the two men over the price the brotherin-law should pay? Explain. What price does the president probably have in mind? The brother-in-law? b. Because the company is operating at full capacity, what cost term used in the chapter might justify the president charging the full, regular price to the brother-in-ian and still be selling "at cost