Heritage Company manufactures a beautiful bookcase that is v

Heritage Company manufactures a beautiful bookcase that is very popular. The company has sufficient demand to keep production going indefinitely at the plant\'s full capacity of 5,300 bookcases per year Annual cost data at full capacity follow: Direct materials used (wood and glass) General office salaries Factory supervision Sales commissions Depreciation, factory building Depreciation, office equipment Indirect materials, factory Factory labour (cutting and assembly) Advertising Insurance, factory General office supplies (billing) Property taxes, factory Utilities, factory $436,500 111,300 79,100 62,600 109,350 2,390 19,300 96,500 113,000 6,650 4,910 22,600 51,500 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 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 tem is a product cost, it should also be classified as either direct or indirect.) Selling or Administrativ Cost Cost Behavior Product Cost Cost Item Variable Fixed Direct Indirect Direct materials used (wood and lass General office salaries Factory supervision Sales commissions Depreciation, factory building Depreciation, office equipment Indirect materials, factory Factory labour (cutting and assembl Advertising Insurance, factory General office supplies (billing) Property taxes, factory Utilities, factory Total costs

Solution

1) Cost Behaviour Selling & Administrative Cost Product Cost Cost Item Variable Fixed Direct Indirect Direct Material Used ( Wood & Glass) 436500 436500 General Offices salary 111300 Factory Supervision 79100 79100 Sales Commission 62600 Depreciation, Factory building 109350 109350 Depreciation, Office Equipment 2390 Indirect mAterial, Factory 19300 19300 Factory labour ( Cutting and Assembly) 96500 96500 Advertising 113000 Insurance Factory 6650 6650 Genral Offices Supplies ( billing) 4910 Property taxes, factory 22600 22600 Utilities Factory 51500 51500 Total Cost 533000 288500 294200 533000 288500 2) Computation of average product Cost per book case Total Cost of Production of bookcase 821500 ( Direct + Indirect) ( 533000+288500) No. of Bookcase produced in a year 5300 Average cost / Bookcase 155 ( Total Cost of Production/ No. of Book case) 3) If Production of 2650 Bookcase then Average production cost will increase Total Cost of Production of bookcase 821500 No. of Bookcase produced in a year due to recession 2650 Average cost / Bookcase 310 4) a.1) Yes, because neighber would expect the procuct on less price because seeling and marketing related expense will not incurred on the same by company a.2) President will think about admistrative and selling cost, recovery from neighbour or not. a.3)-a Direc Cost and Indirect Cost b Differential Cost