The Mahela Company specializes in producing sets of wooden patio furniture consisting of a table and four chairs. The company has ample orders to keep production going at its full capacity of 2,900 sets per quarter. Quarterly cost data at full capacity follow:

Factory labour, direct	$	122,500
Advertising		50,900
Factory supervision		40,900
Property taxes, factory building		4,400
Sales commissions		84,500
Insurance, factory		3,400
Depreciation, office equipment		4,900
Lease cost, factory equipment		12,900
Indirect materials, factory		6,900
Depreciation, factory building		10,900
General office supplies (billing)		3,900
General office salaries		64,500
Direct materials used (wood, bolts, etc.)		98,500
Utilities, factory		20,900

Required:

1.

Enter the dollar amount of each cost item under the appropriate headings. As examples, this has been done already for the first two items in the preceding list. 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.	Compute the average product cost per patio set. (Round your answer to 2 decimal places.)

3.

Assume that production drops to only 1,000 sets quarterly. Would you expect the average product cost per patio set to increase, decrease, or remain unchanged?

	Increase
	Decrease
	Remain unchanged

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

a.	Would you expect any disagreement over the price the brother-in-law should pay? What price does the president probably have in mind? (Round your answer to 2 decimal places.)

b.

Since the company is operating at full capacity, what cost term used in the chapter might be justification for the president to charge the full, regular price to the brother-in-law and still be selling at cost?

	Opportunity cost
	Sunk cost
	Relevant cost