Homework Sourseat its full capacihy of 3800 sets per year Annual cost data
Solution
Requirement - 1
Cost Behavior
Selling or Administrative
Product Cost
Variable
Fixed
Cost
Direct
Indirect
Direct labor
93,000
93,000
Advertising
97,000
97,000
Factory supervision
71,000
71,000
Property taxes, factory building
21,000
21,000
Sales commissions
63,000
63,000
Insurance, factory
8,000
8,000
Depreciation, administrative office equipment
2,000
2,000
Lease cost, factory equipment
17,000
17,000
Indirect materials, factory
18,000
18,000
Depreciation, factory building
109,000
109,000
Administrative office supplies (billing)
3,000
3,000
Administrative office salaries
109,000
109,000
Direct materials used (wood, bolts, etc.)
435,000
435,000
Utilities, factory
42,000
42,000
Total costs
654,000
434,000
274,000
528,000
286,000
Requirement - 2.Average product cost of one patio set = $214 per set
Direct
$528,000
Indirect
286,000
Total
814,000
Number of sets per year
3,800 Sets
Average product cost of one patio set
$214 per set
Requirement - 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 “
| Cost Behavior | Selling or Administrative | Product Cost | |||
| Variable | Fixed | Cost | Direct | Indirect | |
| Direct labor | 93,000 | 93,000 | |||
| Advertising | 97,000 | 97,000 | |||
| Factory supervision | 71,000 | 71,000 | |||
| Property taxes, factory building | 21,000 | 21,000 | |||
| Sales commissions | 63,000 | 63,000 | |||
| Insurance, factory | 8,000 | 8,000 | |||
| Depreciation, administrative office equipment | 2,000 | 2,000 | |||
| Lease cost, factory equipment | 17,000 | 17,000 | |||
| Indirect materials, factory | 18,000 | 18,000 | |||
| Depreciation, factory building | 109,000 | 109,000 | |||
| Administrative office supplies (billing) | 3,000 | 3,000 | |||
| Administrative office salaries | 109,000 | 109,000 | |||
| Direct materials used (wood, bolts, etc.) | 435,000 | 435,000 | |||
| Utilities, factory | 42,000 | 42,000 | |||
| Total costs | 654,000 | 434,000 | 274,000 | 528,000 | 286,000 |
