Question

Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20.000 units, its average costs per unit are as follows:

 Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20.000 units, its average costs per unit are as follows:

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 Required:

 1. Assume the cost object is units of production:

 a. What is the total direct manufacturing cost incurred to make 20,000 units?

 b. What is the total indirect manufacturing cost incurred to make 20.000 units?


 2. Assume the cost object is the Manufacturing Department and that its total output is 20,000 units.

 a. How much total manufacturing cost is directly traceable to the Manutacturing 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 $50,000 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 20,000 units, what is the total direct selling expense that can be readily traced to individual sales representatives?

 b. When the company sells 20,000 units, what is the total indirect selling expense that cannot be readily traced to individual sales representotives?


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Answer #1

1)

1a. Direct materials per unit $7.00
Direct labor per unit 4.00
Direct manufacturing cost per unit $11.00
Number of units sold 20000
Total direct manufacturing costs $220000
1b. Variable manufacturing overhead per unit $1.50
Fixed manufacturing overhead per unit 5.00
Indirect manufacturing cost per unit $6.50
Number of units sold 20000
Total indirect manufacturing cost $130000

2)

2a. Direct materials per unit $7.00
Direct labor per unit 4.00
Variable manufacturing overhead per unit 1.50
Fixed manufacturing overhead per unit 5.00
Total manufacturing cost per unit $17.50
Number of units sold 20000
Total direct costs $350000
2b. Total indirect costs $0

3)

3a. Sales commissions per unit $1.00
Number of units sold 20000
Total sales commission $20000
Fixed portion of sales representatives' compensation (20000*$5-50000) 50000
Total direct selling expense $70000
3b. Total indirect selling expense $50000

When the company sells 20000 units, the total indirect selling expense that cannot be readily traced to individual sales representatives is $50000, which is advertising expense. As advertising expense cannot be traceable to individual sales representative.

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