The Mahela Company specializes in producing sets of wooden patio furniture consisting of a table and four chairs. The company is currently operating at 80% of its full capacity of 2.800 sets per quarter. Quarterly cost data at this level of operations follow, Factory labour, direct Advertising Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation, office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building General office supplies (billing) General office salaries Direct materials used (wood, bolts, etc.) Utilities, factory $122,000 50.800 40.800 4,300 84,000 3,300 4.800 12,800 6,800 10,800 3,800 64,000 98,000 20,800 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) Cost Behaviour Selling and Administrative Variable Fixed Cost $ 122.000 50,800 50.800 Product Cost Direct Indirect 122.000 $ Cost Item Factory labour, direct Advertising Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation office equipment Lease cost, factory equipment Indirect materials, factory Depreciation factory building General office supplies (biling) General office salaries Direct materials used (wood, bolts, etc.) Utilities, factory Total costs *To units of product 3. Assume that production increases to only 2,520 sets quarterly. Would you expect the average product cost per patio set to increase, decrease, or remain unchanged? O Increase Decrease O Remain unchanged 4. Refer to the original data. The president's 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.) the president may expect a minimum price of 4. Refer to the original data. The president's 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 Mahelo 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.) the president may expect a minimum price of b. Since the company is operating below its full capacity, what cost term used in the chapter might be the most applicable in this situation? Opportunity cost Sunk cost Relevant cost
