Question

The Outdoor Dining Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 3,900 sets per year. Annual cost data at full capacity follow Direct labour Advertising Factory supervision Property taxes, factory building Sales Comissions Insurance, factory Depreciation, administrative office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory Administrative office supplies Direct materials used (wood, bolts, etc.) Utilities, factory $ 89,000 $101,000 $ 68,000 $ 22,000 $ 58,000 $ 5,000 $1,000 $ 13,000 $ 18,000 $105,000 $ 4,000 $127.000 $ 41,000 es 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) Cost Behavior Variable Fixed Selling or Administrative Cost Product Cost Direct Indirect Cost Item Direct labour Advertising Factory supervision Property taxes, factory building Sales commissions Insurance factory Depreciation administrative office equipment Lease cost factory equipment Indirect materials factory Depreciation factory building Administrative office supplies Direct materials used

Answer 1

E F Product Cost Indirect Direct $89,000 $68,000 $22,000 $5,000 A B с D 1 1 2 Cost Behavior Selling or Administrati 3 Cost Items Variable Fixed ve Cost 4 Direct labor $89,000 5 Advertising $101,000 $101,000 6 Factory supervision $68,000 7 Property taxes, factory building $22,000 8 Sales commissions $58,000 $58,000 9 Insurance, factory $5,000 10 Depreciation, administrative office equipment $1,000 $1,000 11 Lease cost, factory equipment $13,000 12 Indirect materials, factory $18,000 13 Depreciation factory building $105,000 14 Administrative office supplies $4,000 $4,000 15 Direct materials used $427,000 16 Utilities, factory $41.000 17 Total costs 5637,000 $315.000 $164.000 18 192 20 Average product cost $202 per set 21 22 3 23 The average product cost per set would increase. 24 It is because the fixed product cost per set would increase. $13,000 $18,000 $105,000 $427,000 $41.000 $272.000 $516,000 Calculations are shown below: A B D E F 11 2 Cost Behavior Selling or Product Cost Administrative 3 Cost Items Variable Fixed Cost Direct Indirect 4 Direct labor 89000 89000 5 Advertising 101000 101000 6 Factory supervision 68000 68000 7 Property taxes, factory building 22000 22000 8 Sales commissions 58000 58000 9 Insurance, factory 5000 5000 10 Depreciation, administrative office equipment 1000 1000 11 Lease cost, factory equipment 13000 13000 12 Indirect materials, factory 18000 18000 13 Depreciation, factory building 105000 105000 14 Administrative office supplies 4000 4000 15 Direct materials used 427000 427000 16 Utilities, factory 41000 41000 17 Total costs =SUMB4B16) =SUMC4:C16 =SUMD4:D16 =SUME4:E16 =SUM(F4F16 18 19 2 20 Average product cost =(E17+F177/3900 per set 21 22 3 23 The average product cost per set would increase. 24 It is because the fixed product cost per set would increase