Question

In: Accounting

Direct or Indirect cost

Baird Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality control expert $110,500 per year to inspect completed tents before they are shipped to customers. Assume that the company completed 1,570 tents in January and 1,180 tents in February. For the entire year, the company expects to produce 17,000 tents.

Required

If the cost objective is to determine the cost per tent, is the expert’s salary a direct or an indirect cost?
How much of the expert’s salary should be allocated to tents produced in January and February?

Expert Solution

Cost per Tent = Total Quality Control Cost for Expert / Total Tent estimated to produce

Total Quality Control Costs for Expert

= $110,500

Total Tents estimated to be produced = 17,000 Tents

Cost per Tent = 110,500 / 17,000

Cost per Tent = $ 6.5 per Tent Tested

Cost Allocated for January = Tents Produced during January * Cost per Tent

Cost Allocated for January

= 1,570 Tents * $6.5 per Tent

= $ 10,205

Costs Allocated for February = Tents Produced during February * Cost per Tent

Cost Allocated for February

= 1,180Tents * $ 6.5 per Tent

= $ 7,670

The expert's salary is an indirect cost.

January is $10,205 and february is $7,670

Christopher Mann answered 3 years ago

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