Problem 1-24A Cost Classification and Cost Behavior [LO1-1, LO1-2, LO1-3, LO1-4]

The Dorilane 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 2,000 sets per year. Annual cost data at full capacity follow:

Direct labor	$	118,000
Advertising	$	50,000
Factory supervision	$	40,000
Property taxes, factory building	$	3,500
Sales commissions	$	80,000
Insurance, factory	$	2,500
Depreciation, administrative office equipment	$	4,000
Lease cost, factory equipment	$	12,000
Indirect materials, factory	$	6,000
Depreciation, factory building	$	10,000
Administrative office supplies (billing)	$	3,000
Administrative office salaries	$	60,000
Direct materials used (wood, bolts, etc.)	$	94,000
Utilities, factory	$	20,000

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.)

Cost Behavior

Selling or Administrative

Product Cost

Cost Item

Variable Fixed Cost Direct Indirect Direct labor$118,000$118,000Advertising50,00050,000Factory supervisionProperty taxes, factory buildingSales commissionsInsurance, factoryDepreciation, administrative office equipmentLease cost, factory equipmentIndirect materials, factoryDepreciation, factory buildingAdministrative office supplies (billing)Administrative office salariesDirect materials used (wood, bolts, etc.)Utilities, factoryTotal costs$118,000

2.	Compute the average product cost of one patio set.

Average product cost per 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?

	Increase
	Decrease
	Remain unchanged