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    Heritage Company: classifications, average product cost per

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    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 3,900 bookcases per year. Annual cost data at full capacity follow:

    Direct materials used (wood and glass) $ 430,000
    Administrative office salaries $ 112,000
    Factory supervision $ 72,000
    Sales commissions $ 63,000
    Depreciation, factory building $ 103,000
    Depreciation, administrative office equipment $ 2,000
    Indirect materials, factory $ 17,000
    Factory labor (cutting and assembly) $ 92,000
    Advertising $ 104,000
    Insurance, factory $ 6,000
    Administrative office supplies (billing) $ 5,000
    Property taxes, factory $ 17,000
    Utilities, factory $ 44,000

    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 Product Cost
    ________________________________________ Administrative ________________________________________
    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)


    Insurance, factory

    Administrative office supplies (billing)

    Property taxes, factory

    Utilities, factory

    ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________
    Total costs $

    ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
    2. Compute the average product cost per bookcase. (Round your answer to the nearest dollar amount. 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?

    Remain unchanged



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    Solution Summary

    Your tutorial classifies the costs by cost behavior (fixed, variable) and product or non-product categories. The cost per bookcase is computed for you and the logic of the change in unit cost is given. See attached.