1.Assume the cost object is units of production:
a. What is the total direct manufacturing cost incurred to make 20,000 units?
b. What is the total indirect manufacturing cost incurred to make 20,000 units?
Direct manufacturing costs include costs that can be directly traced to producing units, such as direct materials and direct labor.
Indirect manufacturing costs (or manufacturing overhead) include costs that are not directly traceable to specific units but are necessary for production, like fixed and variable overhead.
1a. What is the total direct manufacturing cost incurred to make 20,000 units?
Direct manufacturing costs include:
Direct materials = $7.00 per unit
Direct labor = $4.00 per unit
For 20,000 units:
Direct materials = 20,000 units × $7.00 = $140,000
Direct labor = 20,000 units × $4.00 = $80,000
Total direct manufacturing cost
=$140,000 + $80,000 = $220,000
1b. What is the total indirect manufacturing cost incurred to make 20,000 units?
Indirect manufacturing costs include:
Variable manufacturing overhead = $1.50 per unit
Fixed manufacturing overhead = $5.00 per unit
Variable manufacturing overhead
= 20,000 units × $1.50 = $30,000
Fixed manufacturing overhead
= 20,000 units × $5.00 = $100,000
Total indirect manufacturing cost
= $30,000 + $100,000 = $130,000
Assume the cost object is the Manufacturing Department and that its total output is 20,000 units.
a. How much total manufacturing cost is directly traceable to the Manufacturing Department?
b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?
The manufacturing costs include direct materials, direct labor, and manufacturing overhead (both variable and fixed).
2a. How much total manufacturing cost is directly traceable to the Manufacturing Department?
Direct manufacturing costs (from 1a) are traceable to the Manufacturing Department:
Direct materials = $140,000
Direct labor = $80,000
Total direct manufacturing cost traceable to the Manufacturing Department = $220,000
2b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?
Indirect manufacturing costs (from 1b) include:
Variable manufacturing overhead = $30,000
Fixed manufacturing overhead = $100,000
Total indirect manufacturing cost = $130,000
Assume the cost object is the company’s various sales representatives. Furthermore, assume that the company spent $50,000 of its total fixed selling expense on advertising and the remainder of the total fixed selling expense comprised the fixed portion of the company’s sales representatives’ compensation.
a. When the company sells 20,000 units, what is the total direct selling expense that can be readily traced to individual sales representatives?
b. When the company sells 20,000 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?
The company spends $50,000 of its total fixed selling expense on advertising.
The remainder of the fixed selling expense is the fixed portion of the sales representatives’ compensation.
3a. When the company sells 20,000 units, what is the total direct selling expense that can be readily traced to individual sales representatives?
Direct selling expenses include:
Sales commissions = $1.00 per unit
Sales commissions = 20,000 units × $1.00 = $20,000
The fixed portion of sales representatives’ compensation is also a direct cost, calculated as:
Total fixed selling expense
= $3.50 per unit × 20,000 units = $70,000
Fixed selling expense on advertising = $50,000
Fixed compensation to sales representatives
= $70,000 - $50,000 = $20,000
Total direct selling expense
= $20,000 (sales commissions) + $20,000 (fixed compensation) = $40,000
3b. When the company sells 20,000 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?
The only indirect selling expense is the fixed advertising expense:
Indirect selling expense = $50,000
Are Kubin’s administrative expenses always going to be treated as indirect costs in its internal management reports?
Yes, administrative expenses are typically classified as indirect costs because they are not directly tied to production or sales activities. Administrative expenses, such as the fixed and variable administrative expenses in Kubin’s case, support the overall operations of the company but cannot be easily traced to individual units, departments, or sales representatives.
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