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?

Complete this question by entering your answers in the tabs below.

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? (Round per unit values to 2 decimal places.)

b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?

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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 24,500 Total direct costs $546,350 2b. Total indirect costs 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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? (Round per unit value to 2 decimal places.) b. When the company sells 24,500 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives? Required 3

Answer 1

	Kubin Company
Requirement
1	Assuming cost object is unit of production
a	Direct manufacturing costs
	Direct Materials				8.2
	Direct labor				5.2
	Variable manufacturing overhead				2.7
	Direct manufacturing costs				16.1
	Units manufactured				24500
	Total direct manufacturing costs				394450
b	Indirect manufacturing costs
	Fixed manufacturing overhead				6.2
	Units manufactured				24500
	Total Indirect manufacturing costs				151900
2	Assuming cost object is manufacturing department
a	Manufacturing costs that can be directly traceble to
	manufacturing department
	Direct Materials				8.2
	Direct labor				5.2
	Variable manufacturing overhead				2.7
	Fixed manufacturing overhead				6.2
	Manufacturing cost traceble to manufacturing department				22.3
	Units manufactured				24500
	Total manufacturing costs				546350
	Costs that can't be directly traceble to
	manufacturing department
	Fixed selling expense				4.7
	Fixed administrative expense				3.7
	Sales commissions				2.2
	Variable administrative expenses				1.7
	costs that can not be tracable to manufacturing department				12.3
	Units manufactured				24500
	Total costs not traceble to manufacturing department				301350
3	Assuming cost object is sales representative
a	Total direct selling expenses which can be traced to
	sales representative
			Units	Unit cost	Costs
	Sales commission		24500	2.2	53900
	Fixed selling expenses		24500	1	24500
	unit cost attributable to sales representative '= 4.7-(90650/24500)=1
	Total direct selling expenses which can be traced to sales representative				78400
b	Total indirect selling expenses which can't be traced to sales representative
	Fixed selling expenses(Advertising)				90650
	Total indirect selling expenses which can't be traced to sales representative				90650