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Homework answers / question archive / The Mahela Company specializes in producing sets of wooden patio furniture consisting of a table and four chairs

The Mahela Company specializes in producing sets of wooden patio furniture consisting of a table and four chairs

Accounting

The Mahela Company specializes in producing sets of wooden patio furniture consisting of a table and four chairs. The company is currently operating at 80% of its full capacity of 3,300 sets per quarter. Quarterly cost data at this level of operations follow: 
Factory labour, direct Advertising Factory supervision Property taxes, factory building Sales commissions Insurance, factory Depreciation, office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building General office supplies (billing) General office salaries Direct materials used (wood, bolts, etc.) Utilities, factory 
$124,500 51,300 41,300 4,800 86,500 3,800 5,300 13,300 7,300 11,300 4,300 66,500 100,500 21,300 

Required 
1. Enter the dollar amount of each cost item 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 either direct or indirect as shown.) 
Cost Behaviour Selling and Administrative Cost Product Cost Cost Item Variable Fixed Direct Indirect* Factory labour, direct $ 124,500 124,500 Advertising 51,300 51,300 Factory supervision ? Property taxes, factory building ? Sales commissions I Insurance, factory ? Depreciation, office equipment I? Lease cost, factory equipment Indirect materials, factory Depreciation, factory building ? General office supplies (billing) ? General office salaries I ? Direct materials used (wood, bolts, etc.) Utilities, factory I? Total costs *To units of product. 
2. 

2. Based on the answers obtained in Requirement (1), compute the average product cost per patio set. (Round your answer to 2 decimal places.) 
Average product cost _ -I per patio set 
3. Assume that production increases to only 2,970 sets quarterly. Would you expect the average product cost per patio set to increase, decrease, or remain unchanged? 
Increase Decrease Remain unchanged 

4. Refer to the original data. The president's brother-in-law has considered making a patio set and has priced the necessary materials at a building supply store. He has asked the president if he could purchase a patio set from 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? What price does the president probably have in 
mind? (Round your answer to 2 decimal places.) 
I, the president may expect a minimum price of 
b. Since the company is operating below its full capacity, what cost term used in the chapter might be the most applicable in this situation? 
Opportunity cost Sunk cost Relevant cost 
4. 
 

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