Question

Exercise 1-7 Direct and Indirect Costs [LO1-1]

Kubin Company’s relevant range of production is 22,000 to 27,000 units. When it produces and sells 24,500 units, its average costs per unit are as follows:

  

	Average Cost per Unit
Direct materials	$	8.20
Direct labor	$	5.20
Variable manufacturing overhead	$	2.70
Fixed manufacturing overhead	$	6.20
Fixed selling expense	$	4.70
Fixed administrative expense	$	3.70
Sales commissions	$	2.20
Variable administrative expense	$	1.70

Required:

1. Assume the cost object is units of production:

a. What is the total direct manufacturing cost incurred to make 24,500 units?

b. What is the total indirect manufacturing cost incurred to make 24,500 units?

2. Assume the cost object is the Manufacturing Department and that its total output is 24,500 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 $90,650 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 24,500 units, what is the total direct selling expense that can be readily traced to individual sales representatives?

b. When the company sells 24,500 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

what is the fixed portion of sales representatives' compensation?​

Answer 1

Solution 1:

Particulars		Amount
1a.	Direct materials per unit	$8.20
	Direct labor per unit	$5.20
	Direct manufacturing cost per unit	$13.40
	Number of units sold	24500
	Total direct manufacturing cost	$328,300.00
1b.	Variable manufacturing overhead per unit	$2.70
	Fixed manufacturing overhead per unit	$6.20
	Indirect manufacturing cost per unit	$8.90
	Number of units sold	24500
	Total indirect manufacturing cost	$218,050.00

Solution 2:

Particulars		Amount
2a.	Direct materials per unit	$8.20
	Direct labor per unit	$5.20
	Variable manufacturing overhead per unit	$2.70
	Fixed manufacturing overhead per unit	$6.20
	Total manufacturing cost per unit	$22.30
	Number of units sold	24500
	Total Manufacturing cost traceble to manufacturing department	$546,350.00
2b.	Total indirect costs	$0.00

Solution 3:

Particulars		Amount
3a.	Sales commissions per unit	$2.20
	Number of units sold	24500
	Total sales commission	$53,900.00
	Fixed portion of sales representatives’ compensation (24500*$4.70 - $90,650)	$24,500.00
	Total direct selling expense	$78,400.00
3b.	The total indirect selling expense	$90,650.00