Manufacturing Product) Cullen Administrative or Fixed Direct labour Executive salaries Factory rent PROBLEM 2-3 Identifying Costs,...

Manufacturing Product) Cullen Administrative or Fixed Direct labour Executive salaries Factory rent PROBLEM 2-3 Identifying Costs, Cost Concepts [LO1 - CC1: LO2- CC2; L04 - CC4, 6) The Mahela Company specializes in producing sets of wooden patio furniture consisting of a table and four chairs. The company has ample orders to keep production going at its full capacity of 2.000 sets per quarter. Quarterly cost data at full capacity follow: CHECK FIGURE 11 Total variable cost: $402,000 Factory labour, direct $168.000 Advertising Factory supervision Property taxes, factory building 50.000 50,000 4.500 80,000 3.500 14,000 Sales commissions Insurance, factory Depreciation office equipment Lease cost, factory equipment 6,000 6,000 8,000 Indirect materials, factory Depreciation, factory building 4.000 General office supplies (billing) 50,000 General office salaries 114,000 Direct materials used (wood, bolts, etc.) 30,000 Utilities, factory 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 preceding list. 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 being either direct or indirect, as shown.)

64 CHAPTER 2. COST CONCEPTS Product Cost Direct Indirect Selling and Administrative Cost Cost Behaviour Variable Fixed $168.000 Cost Item $168,000 Factory labour, direct $50,000 $50,000 Advertising "To units of product 2. Total the dollar amounts in each of the dollar amounts in each of the columns in part (1) Compute the average product cost per patios ne that production drops to only 1,000 sets quarterly. 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 a patio set and has price necessary materials at a building supply store. He has asked the president if he could purchase a patio set in the Mahela Company "at cost," and the president has agreed to let him do so. a. Would you expect any disagreement over the price the brother-in-law should pay? Explain. What does the president probably have in mind? The brother-in-law? b. Since the company is operating at full capacity, what cost term used in the chapter might be justifiche for the president to charge the full, regular price to the brother-in-law and still be selling "at cost? PROBLEM 2-4 Classifying Salary Cost [LO4 - CC7] You have just been hired by Ogden Company to fill a new position that was created in response to ranid you