What price does the president probably have in mind

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Reference no: EM133348382

Question: The Dorilane Company produces a set of wood patio furniture consisting of a table and four chairs. The compay 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

		Cost Behavior			Period (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.

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.
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.
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?
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"?

Reference no: EM133348382

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