Question

Ludmilla Construction Company is composed of two divisions: (1) Home Construction and (2) Commercial Construction. The Home Construction Division is in the process of building 12 houses and the Commercial Construction Division is working on three projects.

Required

1. Identify each cost as being a direct or indirect cost assuming the cost objects are the individual products (houses or projects).

2. Identify each cost as being a direct or indirect cost, assuming the cost objects are the two divisions.

3. Identify each cost as being a direct or indirect cost assuming the cost object is Ludmilla Construction Company as a whole.

Identify each cost as being a direct or indirect cost assuming the cost objects are the individual products (houses or projects).

Items Wages of workers assigned to a specific construction project Supplies used by the Commercial Construction Division Labor on a particular house Salary of the supervisor of commercial construction projects Supplies, such as glue and nails, used by the Home Construction Division Cost of building permits Materials used in commercial construction projects Depreciation on home building equipment (small tools such as hammers or saws) Company president’s salary Depreciation on crane used in commercial construction Depreciation on home office building Salary of corporate office manager

dentify each cost as being a direct or indirect cost, assuming the cost objects are the two divisions.

Items Wages of workers assigned to a specific construction project Supplies used by the Commercial Construction Division Labor on a particular house Salary of the supervisor of commercial construction projects Supplies, such as glue and nails, used by the Home Construction Division Cost of building permits Materials used in commercial construction projects Depreciation on home building equipment (small tools such as hammers or saws) Company president’s salary Depreciation on crane used in commercial construction Depreciation on home office building Salary of corporate office manager

dentify each cost as being a direct or indirect cost assuming the cost object is Ludmilla Construction Company as a whole.

Items Wages of workers assigned to a specific construction project Supplies used by the Commercial Construction Division Labor on a particular house Salary of the supervisor of commercial construction projects Supplies, such as glue and nails, used by the Home Construction Division Cost of building permits Materials used in commercial construction projects Depreciation on home building equipment (small tools such as hammers or saws) Company president’s salary Depreciation on crane used in commercial construction Depreciation on home office building Salary of corporate office manager

Answer 1

Direct cost are those cost which directly linked to a product , means which can directly charge to cist of product and have a direct relation with production ,Whereas indirect cost is that cost which are not directly related with product but is part of product, to which we cannot directly link with product ,

On this basis we can judge that following items are direct or indirect

Identify each cost as being a direct or indirect cost assuming the cost objects are the individual products (houses or projects).

Items                                                                                                                   Direct/ Indirect 1. Wages of workers assigned to a specific construction project                           Direct                2.Supplies used by the Commercial Construction Division                                 Indirect 3.Labour on a particular house                                                                               Direct 4.Salary of the supervisor of commercial construction projects                            Indirect 5.Supplies, such as glue and nails, used by the Home Construction Division       Indirect 6.Cost of building permits                                                                                       Direct 7.Materials used in commercial construction projects                                           Direct 8.Depreciation on home building equipment (small tools such as hammers)         Indirect 9.Company president’s salary                                                                                 Indirect 10.Depreciation on crane used in commercial construction                                    Indirect 11.Depreciation on home office building                                                                Indirect 12Salary of corporate office manager                                                                     Indirect

Identify each cost as being a direct or indirect cost, assuming the cost objects are the two divisions.

Items                                                                                                                  Direct/Indirect 1.Wages of workers assigned to a specific construction project                            Direct 2.Supplies used by the Commercial Construction Division                                   Direct 3.Labour on a particular house                                                                               Direct 4.Salary of the supervisor of commercial construction projects                           Indirect 5.Supplies, such as glue and nails, used by the Home Construction Division       Direct 6.Cost of building permits                                                                                      Direct 7.Materials used in commercial construction projects                                           Direct 8.Depreciation on home building equipment (small tools such as hammers)       Direct 9.Company president’s salary                                                                              Indirect 10.Depreciation on crane used in commercial construction                                  Direct 11.Depreciation on home office building                                                             Indirect 12.Salary of corporate office manager                                                                 Indirect Identify each cost as being a direct or indirect cost assuming the cost object is Ludmilla Construction Company as a whole. Items                                                                                                                Direct/Indirect Wages of workers assigned to a specific construction project                            Direct Supplies used by the Commercial Construction Division                                  Direct Labor on a particular house                                                                                Direct Salary of the supervisor of commercial construction projects                              Direct Supplies, such as glue and nails, used by the Home Construction Division         Direct Cost of building permits                                                                                        Direct Materials used in commercial construction projects                                             Direct Depreciation on home building equipment (small tools such as hammers )         Direct Company president’s salary                                                                                    Direct Depreciation on crane used in commercial construction                                         Direct Depreciation on home office building                                                                     Direct Salary of corporate office manager                                                                           Direct