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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

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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 2,000 sets per quarter. Quarterly cost data at full capacity follow: Factory labour, directly related to production Advertising Salary of factory manager (supervision) Property taxes on the factory building Sales commission (paid as % of sales) Insurance on factory building and equipment Depreciation on office equipment in head office Lease cost on factory equipment Indirect materials used in production in factory Depreciation of factory building General office supplies that varies with usage General quarterly office salaries Direct materials used in production (wood, bolts, etc.) Utilities in factory that varies with production $168,000 50,000 45,000 4,600 80,000 3,500 14,000 6,000 6,000 8,000 4,000 50,000 115,000 30,000 In Column A enter the description for each cost item. In Columns B and Center the dollar amount under the appropriate heading (fixed or variable). Please note that each cost item is classified either as variable or fixed cost with respect to the number of units produced and sold. 2. In Columns E, F and G enter the dollar value for each cost item either as a selling and administrative cost (Period cost) or as a product cost. If the item is a product cost, it should also be classified as either being direct or indirect. 3. Calculate the total amounts in each of the columns. Compute the total product cost as well as the average product cost per patio set. 4. 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? 5. 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 'at cost' for the Mahela Company. Would you expect any disagreement over the price the brother-in-law should pay? What are the prices they have in mind? D COST BEHAVIOUR Variable Fixed PERIOD COST SELLING/ADMIN PRODUCT COST Indirect Direct COST ITEM

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