Question

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

3.  Cost objective is to determine the cost per tent, is the expert’s salary a direct or an indirect cost?   

4. How much of the expert’s salary should be allocated to tents produced in January and February?

Answer 1

Expert Salary is an overhead type of cost that is paid for the test performance exercise. It is not part of direct costs that are incurred in the tents' production process. The expert is to be paid $ 110,500 whether there is a production of 17,000 tents or not. It is a cost that is allocated in months of the year based on production. The cost objective for each tent can be determined by allocating the cost of expert salary to the tents produced.

3. direct or indirect cost?

 Indirect Cost

4. How much of the expert’s salary should be allocated to tents produced in January and February?

Cost per Tent = Total quality control cost for Expert / Total tent estimated to be produced per year.

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

Cost allocated = Tents produced * Cost per tent

Cost Allocated for January = 1,570 tents * $ 6.5 = $ 10,205

Cost allocated for February =1,180 tents * $ 6.5 = $ 7,670