Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity.

Heritage Company manufactures a beautiful bookcase that enjoys widespread popularity. The company has a backlog of orders that is large enough to keep production going indefinitely at the plant's full capacity of 4,000 bookcases per year. Annual cost data at full capacity follow:

Direct materials used (wood and glass)	$	430,000
Administrative office salaries	$	110,000
Factory supervision	$	70,000
Sales commissions	$	60,000
Depreciation, factory building	$	105,000
Depreciation, administrative office equipment	$	2,000
Indirect materials, factory	$	18,000
Factory labor (cutting and assembly)	$	90,000
Advertising	$	100,000
Insurance, factory	$	6,000
Administrative office supplies (billing)	$	4,000
Property taxes, factory	$	20,000
Utilities, factory	$	45,000

Required:

1.

Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as either variable or fixed with respect to the number of units produced and sold; and second, as either 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.) (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

	Cost Behavior		Selling or Administrative	Product Cost
Cost Item	Variable	Fixed	Cost	Direct	Indirect
Direct materials used (wood, glass)	$	$	$	$	$
Administrative office salaries
Factory supervision
Sales commissions
Depreciation, factory building
Depreciation, admin. office equipment
Indirect materials, factory
Factory labor (cutting and assembly)
Advertising
Insurance, factory
Administrative office supplies (billing)
Property taxes, factory
Utilities, factory
Total costs	$	$	$	$	$

2.	Compute the average product cost per bookcase. (Omit the "$" sign in your response.)

Average product cost

$

per bookcase

3.	Due to a recession, assume that production drops to only 2,000 bookcases per year. Would you expect the average product cost per bookcase to increase, decrease, or remain unchanged?
	Increase

Explanation:

2.

The average product cost per bookcase will be:

Direct	$ 520,000
Indirect	264,000
Total	$ 784,000

$784,000 ÷ 4,000 bookcases = $196 per bookcase

3.

The average product cost per bookcase would increase if the production drops. This is because the fixed costs would be spread over fewer units, causing the average cost per unit to rise.

  

Listed below are costs found in various organizations. For each cost item, indicate whether it would

Listed below are costs found in various organizations. For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it would typically be treated as a direct cost or an indirect cost with respect to units of product.

                                             

	Cost Item	Variable or Fixed	Selling Cost	Administrative Cost	Direct	Indirect
Ex.	Direct labor	Variable			X
	Executive salaries	Fixed		X
	Factory rent	Fixed				X
1.	Depreciation, executive jet	Fixed	No	Yes	No	No
2.	Costs of shipping finished goods to customers	Variable	Yes	No	No	No
3.	Wood used in manufacturing furniture	Variable	No	No	Yes	No
4.	Sales manager’s salary	Fixed	Yes	No	No	No
5.	Electricity used in manufacturing furniture	Variable	No	No	No	Yes
6.	Secretary to the company president	Fixed	No	Yes	No	No
7.	Aerosol attachment placed on a spray can produced by the company	Variable	No	No	Yes	No
8.	Billing costs	Variable	Yes	Yes	No	No
9.	Packing supplies for shipping products overseas	Variable	Yes	No	No	No
10.	Sand used in manufacturing concrete	Variable	No	No	Yes	No
11.	Supervisor’s salary, factory	Fixed	No	No	No	Yes
12.	Executive life insurance	Fixed	No	Yes	No	No
13.	Sales commissions	Variable	Yes	No	No	No
14.	Fringe benefits, assembly line workers	Variable	No	No	Yes	Yes
15.	Advertising costs	Fixed	Yes	No	No	No
16.	Property taxes on finished goods warehouses	Fixed	Yes	No	No	No
17.	Lubricants for production equipment	Variable	No	No	No	Yes