Question

Kubin Company’s relevant range of production is 11,000 to 14,000 units. When it produces and sells 12,500 units, its average costs per unit are as follows:

  

	Average Cost per Unit
Direct materials	$	7.20
Direct labor	$	4.20
Variable manufacturing overhead	$	1.70
Fixed manufacturing overhead	$	5.20
Fixed selling expense	$	3.70
Fixed administrative expense	$	2.70
Sales commissions	$	1.20
Variable administrative expense	$	0.70

Required:

1. Assume the cost object is units of production:

a. What is the total direct manufacturing cost incurred to make 12,500 units?

b. What is the total indirect manufacturing cost incurred to make 12,500 units?

2. Assume the cost object is the Manufacturing Department and that its total output is 12,500 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 $33,750 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 12,500 units, what is the total direct selling expense that can be readily traced to individual sales representatives?

b. When the company sells 12,500 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

Answer 1

1a	Direct Material per unit	$                        7.20
	Direct Labor per unit	$                        4.20
	Direct Manufacturing cost per unit	$                      11.40
	No. of units sold	12,500
	Total Direct manufacturing cost	$           142,500.00
1b	Variable manufacturing overhead per unit	$                        1.70
	Fixed manufacturing Overhead per unit	$                        5.20
	Indirect Manufacturing cost per unit	$                        6.90
	No. of units sold	12,500
	Total Indirect manufacturing cost	$              86,250.00

2a	Direct Material per unit	$                        7.20
	Direct Labor per unit	$                        4.20
	Variable manufacturing overhead per unit	$                        1.70
	Fixed manufacturing Overhead per unit	$                        5.20
	Total Manufacturing cost per unit	$                      18.30
	No. of units sold	12,500
	Total Direct Costs	$           228,750.00
2b	Total Indirect Costs	$                             -

3a	Sales Commission per unit	$                        1.20
	No. of units sold	12500
	Total Sales Commission	$              15,000.00
[12500 units x $3.70] - $33750	Fixed portion of sales representative compensation	$              12,500.00
	Total direct selling expense	$              27,500.00
3b	Total Indirect Selling Expense	$              33,750.00