Question 1:

The Dorilane Company specializes in producing a set of wood patio furniture consisting of a
table and four chairs. The set enjoys great popularity, and the company has ample orders to keep
production going at its full capacity of 2,000 sets per year. Annual cost data at full capacity
follow:

a. Classify each of these cost items using the following format & put the dollar amount under the
appropriate headings (see the first item for an example)

Cost item Cost Behavior Selling or Product Cost

Variable Fixed Administrative cost Direct Indirect
Factory labor, $118,000 $118,000
direct

b. Compute the average product cost of one patio set.

c. Assume that production drops to only 1,000 set annually. Would you expect the average
product cost per set to increase, decrease or remain unchanged?
Question 2:
The following sales, cost and inventory data are taken from the accounting records of Mason
Company for the year just completed:

Sales $480,000
Costs incurred
Direct labor cost $70,000
Purchases of raw materials $118,000
Indirect materials $5,000
Indirect manufacturing labor $10,000
Manufacturing machinery depreciation $20,000
Leasing cost - factory $40,000
Manufacturing overhead - others $5,000
Advertising expense $35,000
Administrative expense $15,000

Beginning End of the

of the year year
Inventories
Raw materials $7,000 $15,000
Work in process $10,000 $5,000
Finished goods $20,000 $35,000

a. Prepare a schedule of cost of goods manufactured.

b. Prepare Mason Company’s income statement.