Exercise 1-7 Direct and Indirect Costs [LO1-1] Kubin Company’s relevant range of
ID: 2328561 • Letter: E
Question
Exercise 1-7 Direct and Indirect Costs [LO1-1]
Kubin Company’s relevant range of production is 22,000 to 27,000 units. When it produces and sells 24,500 units, its average costs per unit are as follows:
Required:
1. Assume the cost object is units of production:
a. What is the total direct manufacturing cost incurred to make 24,500 units?
b. What is the total indirect manufacturing cost incurred to make 24,500 units?
2. Assume the cost object is the Manufacturing Department and that its total output is 24,500 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?
3. Assume the cost object is the company’s various sales representatives. Furthermore, assume that the company spent $90,650 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 24,500 units, what is the total direct selling expense that can be readily traced to individual sales representatives?
b. When the company sells 24,500 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?
what is the fixed portion of sales representatives' compensation?
Average Cost per Unit Direct materials $ 8.20 Direct labor $ 5.20 Variable manufacturing overhead $ 2.70 Fixed manufacturing overhead $ 6.20 Fixed selling expense $ 4.70 Fixed administrative expense $ 3.70 Sales commissions $ 2.20 Variable administrative expense $ 1.70Explanation / Answer
Direct Manufacturing Cost are direct material,direct labour and manufacturing overhead under units of production Indirect Manufacturing cost are the other expenses which are not related to manufacturing under units of production 1-a Total Direct Manufacturing Cost incurred to make 24500 units DM 24500*8.2 $200,900 DL 24500*5.2 $127,400 Variable MOH 24500*2.7 $66,150 Fixed MOH 24500*6.2 $151,900 Total Manfacturing Cost $546,350 b Total Indirect Manufacturing Cost incurred to make 24500 units Fixed Selling Exp 24500*4.7 $115,150 Fixed Admin Exp 24500*3.7 $90,650 Sales Commission 24500*2.2 $53,900 variable admin Exp 24500*1.7 $41,650 Total Indirect Manufacturing Cost $301,350 2-a Total manufacturing cost directly traceable to the manufacturing department Variable MOH 24500*2.7 $66,150 Fixed MOH 24500*6.2 $151,900 When the manufacturing department is the cost object $218,050 b None of the Manufacturing cost should be treated as indirect cost when the cost object is manufacturing department 3a The first step in calculating the total direct selling is to determine the fixed portion of sales representatives compensation as Fixed Selling Expenses per unit $4.70 No of Units Sold 24500 Total Fixed Selling Expense $115,150.00 Total Advrtising Exp $90,650 Therefore the Fixed Portion of $24,500.00 sales representative compensation b The Total indirect selling expenses that cannot be traced to individual sales represntatives is $90650 Since the advertising expenditures cannt be traced to specific sales representatives
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