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10/8/20, 1 :24 pm

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

Kubin Company’s relevant range of production is 24,000 to 31,000 units. When it produces and sells 27,500 units, its average costs per unit are as follows:

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense

Average Cost per Unit $ 8.40 $ 5.40 $ 2.90 $ 6.40 $ 4.90 $ 3.90 $ 2.40 $ 1.90

Required: 1. Assume the cost object is units of production: a. What is the total direct manufacturing cost incurred to make 27,500 units? b. What is the total indirect manufacturing cost incurred to make 27,500 units? 2. Assume the cost object is the Manufacturing Department and that its total output is 27,500 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 $107,250 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 27,500 units, what is the total direct selling expense that can be readily traced to individual sales representatives? b. When the company sells 27,500 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

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10/8/20, 1 :24 pm

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

Required 1

Required 2

Required 3

1. Assume the cost object is units of production: a. What is the total direct manufacturing cost incurred to make 27,500 units? (Round per unit values to 2 decimal places.) b. What is the total indirect manufacturing cost incurred to make 27,500 units? (Round per unit values to 2 decimal places.)

1a.

$

Direct materials per unit Direct labor per unit

$

Direct manufacturing cost per unit

# #

13.80 27,500

Number of units sold

1b.

8.40 5.40

Total direct manufacturing cost

$

Variable manufacturing overhead per unit

$

Fixed manufacturing overhead per unit $

Indirect manufacturing cost per unit

2.90

#

6.40

#

9.30 27,500

Number of units sold $

Total indirect manufacturing cost ! !

Required 1

#

379,500

#

255,750 Required 2

" "

Garrison 16e Rechecks 2017-06-15, 2017-08-07

References Worksheet

Difficulty: 1 Easy

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

Learning Objective: 01-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs.

Exercise 1-7 Direct and Indirect Costs [LO1-1] Kubin Company’s relevant range of production is 24,000 to 31,000 units. When it produces and sells 27,500 units, its average costs per unit are as follows:

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense

Average Cost per Unit $ 8.40 $ 5.40 $ 2.90 $ 6.40 $ 4.90 $ 3.90 $ 2.40 $ 1.90

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10/8/20, 1 :24 pm

Required: 1. Assume the cost object is units of production: a. What is the total direct manufacturing cost incurred to make 27,500 units? b. What is the total indirect manufacturing cost incurred to make 27,500 units? 2. Assume the cost object is the Manufacturing Department and that its total output is 27,500 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 $107,250 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 27,500 units, what is the total direct selling expense that can be readily traced to individual sales representatives? b. When the company sells 27,500 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

1. Assume the cost object is units of production: a. What is the total direct manufacturing cost incurred to make 27,500 units? (Round per unit values to 2 decimal places.) b. What is the total indirect manufacturing cost incurred to make 27,500 units? (Round per unit values to 2 decimal places.)

1a. Direct materials per unit

$

8.40

F

$

13.80

F

$

379,500

$

2.90

Direct labor per unit

5.40

Direct manufacturing cost per unit Number of units sold

27,500

Total direct manufacturing cost

1b. Variable manufacturing overhead per unit Fixed manufacturing overhead per unit

6.40

Indirect manufacturing cost per unit

F

$

Number of units sold

9.30 27,500

Total indirect manufacturing cost

F

! !

$

255,750

Required 1

Required 2

" "

Garrison 16e Rechecks 2017-06-15, 2017-08-07

Explanation: 1b. Note: The average fixed manufacturing overhead cost per unit of $6.40 is valid for only one level of activity—27,500 units produced. 2b. None of the manufacturing costs should be treated as indirect costs when the cost object is the Manufacturing Department. 3a. The first step in calculating the total direct selling expense is to determine the fixed portion of the sales representatives’ compensation as follows: Fixed selling expense per unit (a) Number of units sold (b) Total fixed selling expense (a) × (b) Total fixed selling expense (a) Advertising expenditures (b) Total fixed portion of the sales representatives’ compensation (a) ‒

$

4.90 27,500 $ 134,750 $ 134,750 $ 107,250

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(b)

10/8/20, 1 :24 pm

$ 27,500

3b. The total indirect selling expense that cannot be traced to individual sales representatives is $107,250. The advertising expenditures cannot be traced to specific sales representatives.

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