Required: 1. 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 examples, this has been done already for the first two items in the list above. 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 as shown.) Period Cost Behavior (Selling or Administrative) Cost Product Cost Cost Item Variable Fixed Direct Indirect Direct labor $118,000 $118,000 Advertising $50,000 $50,000 To units of product. 2. Total the dollar amounts in each of the columns in (1) above. Compute the average product cost of one patio 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? Explain. No computations are necessary. 4. Refer to the original data. The president's brother-in-law has considered making himself a patio set and has priced the necessary materials at a building supply store. The brother-in-law has asked the president if he could purchase a patio set from the Dorilane Company "at cost," and the president agreed to let him do so. a. Would you expect any disagreement between the two men over the price the brother-in-law should pay? Explain. What price does the president probably have in mind? The brother-in-law? b. Because 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 the brother-in-law and still be selling "at cost"?
Required: 1. 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 examples, this has been done already for the first two items in the list above. 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 as shown.) Period Cost Behavior (Selling or Administrative) Cost Product Cost Cost Item Variable Fixed Direct Indirect Direct labor $118,000 $118,000 Advertising $50,000 $50,000 To units of product. 2. Total the dollar amounts in each of the columns in (1) above. Compute the average product cost of one patio 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? Explain. No computations are necessary. 4. Refer to the original data. The president's brother-in-law has considered making himself a patio set and has priced the necessary materials at a building supply store. The brother-in-law has asked the president if he could purchase a patio set from the Dorilane Company "at cost," and the president agreed to let him do so. a. Would you expect any disagreement between the two men over the price the brother-in-law should pay? Explain. What price does the president probably have in mind? The brother-in-law? b. Because 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 the brother-in-law and still be selling "at cost"?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Case #1 – Dorilane Company
The Dorilane Company produces a set of wood patio furniture consisting of a table and four chairs. The
company has enough customer demand to justify producing 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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81bc263b-7a7d-4318-ae35-38ea6dff6265%2F5fc3146e-11ba-42eb-bfd4-c9aa1e3087cd%2Feh89ymq_processed.png&w=3840&q=75)
Transcribed Image Text:Case #1 – Dorilane Company
The Dorilane Company produces a set of wood patio furniture consisting of a table and four chairs. The
company has enough customer demand to justify producing 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. 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
examples, this has been done already for the first two items in the list above. 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 as shown.)
Period
Cost Behavior
(Selling or
Administrative)
Product Cost
Cost Item
Variable
Fixed
Cost
Direct
Indirect
Direct labor
$118,000
$118,000
Advertising
$50,000
$50,000
To units of product.
2. Total the dollar amounts in each of the columns in (1) above. Compute the average
product cost of one patio 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? Explain. No
computations are necessary.
4. Refer to the original data. The president's brother-in-law has considered making
himself a patio set and has priced the necessary materials at a building supply store.
The brother-in-law has asked the president if he could purchase a patio set from the
Dorilane Company "at cost," and the president agreed to let him do so.
a. Would you expect any disagreement between the two men over the price the
brother-in-law should pay? Explain. What price does the president probably have in
mind? The brother-in-law?
b. Because 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 the
brother-in-law and still be selling "at cost"?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81bc263b-7a7d-4318-ae35-38ea6dff6265%2F5fc3146e-11ba-42eb-bfd4-c9aa1e3087cd%2Fa929ed_processed.png&w=3840&q=75)
Transcribed Image Text:Required:
1. 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
examples, this has been done already for the first two items in the list above. 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 as shown.)
Period
Cost Behavior
(Selling or
Administrative)
Product Cost
Cost Item
Variable
Fixed
Cost
Direct
Indirect
Direct labor
$118,000
$118,000
Advertising
$50,000
$50,000
To units of product.
2. Total the dollar amounts in each of the columns in (1) above. Compute the average
product cost of one patio 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? Explain. No
computations are necessary.
4. Refer to the original data. The president's brother-in-law has considered making
himself a patio set and has priced the necessary materials at a building supply store.
The brother-in-law has asked the president if he could purchase a patio set from the
Dorilane Company "at cost," and the president agreed to let him do so.
a. Would you expect any disagreement between the two men over the price the
brother-in-law should pay? Explain. What price does the president probably have in
mind? The brother-in-law?
b. Because 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 the
brother-in-law and still be selling "at cost"?
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