Required:

Prepare an answer sheet with the column headings shown below. Enter each cost item

on your answer sheet, placing the dollar amount under the appropriate headings. As an

example, this has already been done for the first item in the list above. Note that each

cost item is classified in two ways: first, as either variable or fixed with respect to the

number of units produced and sold, and second, as either 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, as shown.$)$

Total the dollar amounts in each of the columns in $(1)$ above. Compute the average

product cost per patio set.

Due to reduced demand, assume that production drops to only $1,000$ sets per year.

Would you expect the average product cost per patio set to increase, decrease, or re$-$

main unchanged? Explain. No computations are necessary.

Refer to the original data. The president's sister has considered making herself a patio

set and has priced the necessary materials at a building supply store. As an alternative,

she has asked the president whether she could purchase a patio set from the Outdoor

Dining Company $"$at cost$,"$ and the president has agreed to let her do so$.$

a$.$ Would you expect any disagreement between the two over the price the sister

should pay? Explain. What price does the president probably have in mind? The

sister?

b$.$ Since the company is operating at full capacity, what cost term used in the chapter

might be justification for the president to charge the full regular price to his sister

and still be selling $"$at cost$"?$ Explain.