product cost, it should also be classified as either direct or indirect.
1. Direct labor: $95,000 (Variable, Product Cost, Direct)
2. Advertising: $97,000 (Fixed, Selling and Administrative Cost)
3. Factory supervision: $70,000 (Fixed, Product Cost, Indirect)
4. Property taxes, factory building: $16,000 (Fixed, Product Cost, Indirect)
5. Sales commissions: $62,000 (Variable, Selling and Administrative Cost)
6. Insurance, factory: $7,000 (Fixed, Product Cost, Indirect)
7. Depreciation, administrative office equipment: $2,000 (Fixed, Selling and Administrative Cost)
8. Lease cost, factory equipment: $17,000 (Fixed, Product Cost, Indirect)
9. Indirect materials, factory: $20,000 (Variable, Product Cost, Indirect)
10. Depreciation, factory building: $105,000 (Fixed, Product Cost, Indirect)
11. Administrative office supplies (billing): $3,000 (Fixed, Selling and Administrative Cost)
12. Administrative office salaries: $108,000 (Fixed, Selling and Administrative Cost)
13. Direct materials used (wood, bolts, etc.): $433,000 (Variable, Product Cost, Direct)
14. Utilities, factory: $48,000 (Variable, Product Cost, Indirect)
2. Average product cost of one patio set:
Total Product Costs = $95,000 + $70,000 + $16,000 + $7,000 + $2,000 + $17,000 + $20,000 + $105,000 + $433,000 + $48,000
Total Product Costs = $813,000
Average Product Cost per Set = $813,000 / 3,900 sets = $208.46 per set
3. If production drops to only 1,000 sets annually, the average product cost per set would increase.