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Unformatted text preview: P2-19 Dorilane Company
1&2. Cost Classifications & Totals Cost Item Factory labor, 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 General office salaries Direct materials used Utilities, factory Total Costs 2. Average Cost Per Set Direct product costs Indirect product costs Total product costs Production volume Average cost (per set) Cost Behavior Selling or Variable Fixed Admin. Cost $118,000 $50,000 $50,000 $40,000 $3,500 $80,000 $80,000 $2,500 $4,000 $4,000 $12,000 $6,000 $10,000 $3,000 $3,000 $60,000 $60,000 $94,000 $20,000 $321,000 $182,000 $197,000 Product Cost Direct Indirect $118,000 $40,000 $3,500 $2,500 $12,000 $6,000 $10,000 $94,000 $212,000 $20,000 $94,000 $212,000 $94,000 $306,000 2,000 $153 3. Impact of Reduction in Production Volume The average cost per set would increase. This is because the fixed costs would be spread over fewer units, causing the cost per unit to rise. 4. Selling "at cost" to Brother-in-Law (a) The president is likely to ask for at least $153, which is the average unit cost at full capacity. The brother-in-law will probably expect to pay for only direct costs, which is materials cost quoted by building supply store plus an allowance for labor. This would be closer to $106 [($94,000 + $118,000)/2,000]. (b) The term used is opportunity cost. Since the company is operating at full capacity, they must give up the full price to sell a bookcase to the neighbor. Therefore, the president's cost is the full cost. ...
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- Spring '09