Question

ul capacity of 4,200 sets per year. Annual cost dats at full capacity follow 104.000 107000 42.000 Product Cost factory office salaries

Answer 1

1)

	Cost Behavior		Selling or Administrative	Product Cost
	Variable	Fixed	Cost	Direct	Indirect
Direct labor	88,000			88,000
Advertising		104,000	104,000
Factory supervision		73,000			73,000
Property taxes, factory building		25,000			25,000
Sales commissions	63,000		63,000
Insurance, factory		7,000			7,000
Depreciation, administrative office equipment		2,000	2,000
Lease cost, factory equipment		13,000			13,000
Indirect materials, factory	19,000				19,000
Depreciation, factory building		108,000			108,000
Administrative office supplies (billing)	3,000		3,000
Administrative office salaries		107,000	107,000
Direct materials used (wood, bolts, etc.)	435,000			435,000
Utilities, factory	42,000				42,000
	650,000	439,000	279,000	523,000	287,000

　

2) Solution: 192.86

Working:

Average product cost = (Direct + Indirect) / No of units = (523000 + 287,000) / 4200 = 192.86

3) Solution: Increase

Working: The average product cost per set will rise if the production increases because the fixed costs would be spread leading the average cost per unit to increase.