Chapter 12, Problem 1E

LO 4-1    Exercise 4-1A Direct versus indirect costs

Ludmilla Construction Company is composed of two divisions: (1) Home Construction and (2) Commercial Construction. The Home Construction Division is in the process of building 12 houses and the Commercial Construction Division is working on three projects. Cost items of the company follow:

Wages of workers assigned to a specific construction project

Supplies used by the Commercial Construction Division

Labor on a particular house

Salary of the supervisor of commercial construction projects

Supplies, such as glue and nails, used by the Home Construction Division

Cost of building permits

Materials used in commercial construction projects

Depreciation on home building equipment (small tools such as hammers or saws)

Company president’s salary

Depreciation on crane used in commercial construction

Depreciation on home office building

Salary of corporate office manager

Required

1. a. Identify each cost as being a direct or indirect cost assuming the cost objects are the individual products (houses or projects).
2. b. Identify each cost as being a direct or indirect cost, assuming the cost objects are the two divisions.
3. c. Identify each cost as being a direct or indirect cost assuming the cost object is Ludmilla Construction Company as a whole.