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:

 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 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 $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 representatives?

Answer 1

1a.	Direct materials per unit	7
	Direct labor per unit	4
	Direct manufacturing cost per unit	$11.00
	Number of units sold	20000
	Total direct manufacturing cost	$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

2a.	Direct materials per unit	7
	Direct labor per unit	4
	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

None of the manufacturing costs should be treated as indirect costs when the cost object is the Manufacturing Department

3a.	Sales commissions per unit	1
	Number of units sold	20000
	Total sales commission	$20000
	Fixed portion of sales representatives’ compensation	20000
	Total direct selling expense	$40000
3b.	The total indirect selling expense	$20000

Total fixed portion of the sales representatives’ compensation = Total fixed selling expense - Advertising expenditures = (3.50*20000) – 50000 = $20000

Advertising expenditures cannot be traced to specific sales representatives.