Chapter 1, Problem 7E

Direct and Indirect CostsKubin 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?
4. Are Kubin’s administrative expenses always going to be treated as indirect costs in its internal management reports?