Question

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 4,100 sets per year. Annual cost data at full capacity follow:

Direct labor	$	89,000
Advertising	$	104,000
Factory supervision	$	74,000
Property taxes, factory building	$	23,000
Sales commissions	$	57,000
Insurance, factory	$	7,000
Depreciation, administrative office equipment	$	2,000
Lease cost, factory equipment	$	13,000
Indirect materials, factory	$	20,000
Depreciation, factory building	$	109,000
Administrative office supplies (billing)	$	5,000
Administrative office salaries	$	107,000
Direct materials used (wood, bolts, etc.)	$	427,000
Utilities, factory	$	45,000

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.)

2. Compute the average product cost of one patio 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?

Answer 1