Exercise 12-17 Cost allocation in a manufacturing company Hunt Manufacturing mak

Question

Exercise 12-17 Cost allocation in a manufacturing company
Hunt Manufacturing makes tents that it sells directly to camping enthusiasts through a mail order marketing program. The company pays a quality control expert $72,000 per year to inspect completes tents before they are shipped to customers. Assume that the company completed 1,600 tents in January and 1,200 tents in February. For the entire year, the company expects to produce 15,000 tents.
Required
A.Explain how changes in the cost driver (number of tents inspected) affected the total amount of fixed inspection cost.
B.Explain how changes in the cost driver (number of tents inspected) affect the amount of fixed inspection cost per unit.
C.If the cost objective is to determine the cost per tent, is the expert

Explanation / Answer

1)Explain how changes in the cost driver (number of tents inspected) affect the total amount of fixed inspection cost. The cost driver here is tents inspected. The number of tennts inspected in january and february = 1600+1200 = 2800 tents The cost paying for expert = $72000 Total expected tents to produce = 15000 per unit = $72000 /15000 = $4.8 So During the january and february allocated cost = 2800 *4.8 =$13440 So the changes in total amount at march 1st = $72000 -$13440 = $58560(remain) 2) Explain how changes in the cost driver (number of tents inspected) affect the amount of fixed inspection cost per unit. fixed inspection cost per unit = 72000 / 15000 = $4.8 after march 1st : fixes inspection cost per unit = 58560/(15000-2800) = $ 4.8 so no changes in the cost. 3)If the cost objective is to determine the cost per tent, is the expert's salary a direct or an indirect cost? it is direct cost. if it is estimated cost per unit ,then according to prduced tents ,the cost will be alloacated for the same period.So it is in the nature of "Direct cost" 4) During january = 1600 *4.8 (cost per tent) = $7680 (allocated) During February = 1200*4.8 = $5760(allocated)

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