Question

Kubin Company’s relevant range of production is 25,000 to 33,500 units. When it produces and sells 29,250 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $ 8.50 Direct labor $ 5.50 Variable manufacturing overhead $ 3.00 Fixed manufacturing overhead $ 6.50 Fixed selling expense $ 5.00 Fixed administrative expense $ 4.00 Sales commissions $ 2.50 Variable administrative expense $ 2.00 Required: 1. Assume the cost object is units of production: a. What is the total direct manufacturing cost incurred to make 29,250 units? b. What is the total indirect manufacturing cost incurred to make 29,250 units? 2. Assume the cost object is the Manufacturing Department and that its total output is 29,250 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 $117,000 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 29,250 units, what is the total direct selling expense that can be readily traced to individual sales representatives? b. When the company sells 29,250 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

Answer 1

Solution:

1a. The total direct manufacturing cost incurred
Direct materials per unit	$ 8.50
Direct labor per unit	$ 5.50
Direct manufacturing cost per unit (a)	$14.00
Number of units sold (b)	29,250
Total direct manufacturing cost (a) × (b)	$409,500

1b. The total indirect manufacturing cost incurred
Variable manufacturing overhead per unit	$3.00
Fixed manufacturing overhead per unit	$6.50
Indirect manufacturing cost per unit (a)	$9.50
Number of units sold (b)	29,250
Total indirect manufacturing cost (a) × (b)	$277,875.00

2a. The total manufacturing cost that is directly traceable to the Manufacturing Department
Direct materials per unit	$8.50
Direct labor per unit	$5.50
Variable manufacturing overhead per unit	$3.00
Fixed manufacturing overhead per unit	$6.50
Indirect manufacturing cost per unit (a)	$23.50
Number of units sold (b)	29,250
Total direct costs (a) × (b)	$687,375.00

2b.None of the manufacturing costs should be treated as indirect costs when the cost object is the Manufacturing Department.
Indirect Cost	$0.00

3a)
Fixed selling expense per unit (a)	$5.00
Number of units sold (b)	29,250
Total fixed selling expense (a) × (b)	$146,250.00
Total fixed selling expense (a)	$146,250.00
Administrative expenditures (b) ($4.00 x 29,250)	$117,000.00
Total fixed portion of the sales representatives’ compensation (a) ‒ (b)	$29,250.00
total direct selling expense that is traceable to individual sale
Sales commissions per unit (a)	$2.50
Number of units sold (b)	29,250
Total sales commission (a) × (b)		$73,125.00
Fixed portion of sales representatives’ compensation		$29,250.00
Total indirect selling expense		$102,375.00

3b. The total indirect selling expense that cannot be traced to individual sales representatives is $117,000.00. The advertising expenditures cannot be traced to specific sales representatives.