Chapter 1 Direct and Indirect Costs Exam 1 Complete Solution
Exercise 1-7 Direct and Indirect Costs [LO1-1]
Kubin Company’s relevant range of
... [Show More] production is 18,000 to 22,000 units. When it produces, and sells 20,000 units, its average costs per unit are as follows:
Average Cost per Unit
Direct materials $ 7.00
Direct labor $ 4.00
Variable manufacturing overhead $ 1.50
Fixed manufacturing overhead $ 5.00
Fixed selling expense $ 3.50
Fixed administrative expense $ 2.50
Sales commissions $ 1.00
Variable administrative expense $ 0.50
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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 Manufacturing Department?
b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?
Explanation
1b.
Note: The average fixed manufacturing overhead cost per unit of $5.00 is valid for only one level of activity—20,000 units produced.
2b.
2a. Direct materials per unit $7.00selected answer correct
Direct labor per unit 4.00selected answer correct
Variable manufacturing overhead per unit 1.50selected answer correct
Fixed manufacturing overhead per unit 5.00selected answer correct
Total manufacturing cost per unit $17.50
Number of units sold 20,000selected answer correct
Total direct costs $350,000
2b. Total indirect costs 0
2b None of the manufacturing costs should be treated as indirect costs when the cost object is 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?
3a. Sales commissions per unit $1.00
Number of units sold 20,000
Total sales commission $20,000
Fixed portion of sales representatives’ compensation 20,000
Total direct selling expense $40,000
3b. The total indirect selling expense $50,000
a.The first step in calculating the total direct selling expense is to determine the fixed portion of the sales representatives’ compensation as follows:
Fixed selling expense per unit (a) $ 3.50
Number of units sold (b) 20,000
Total fixed selling expense (a) × (b) $ 70,000
Total fixed selling expense (a) $ 70,000
Advertising expenditures (b) $ 50,000
Total fixed portion of the sales representatives’ compensation (a) ‒ (b) $ 20,000
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3b.
The total indirect selling expense that cannot be traced to individual sales representatives is $50,000. The advertising expenditures cannot be traced to specific sales representatives.
Exercise 1-8 Product Costs and Period Costs; Variable and Fixed Costs [LO1-3, LO1-4]
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:
Average Cost per Unit
Direct materials $ 7.00
Direct labor $ 4.00
Variable manufacturing overhead $ 1.50
Fixed manufacturing overhead $ 5.00
Fixed selling expense $ 3.50
Fixed administrative expense $ 2.50
Sales commissions $ 1.00
Variable administrative expense $ 0.50
________________________________________
Required:
1. For financial accounting purposes, what is the total amount of product costs incurred to make 20,000 units?
2. For financial accounting purposes, what is the total amount of period costs incurred to sell 20,000 units?
3. For financial accounting purposes, what is the total amount of product costs incurred to make 22,000 units?
4. For financial accounting purposes, what is the total amount of period costs incurred to sell 18,000 units?
Garrison 16e Rechecks 2017-08-07
Explanation
1.
Direct materials $ 7.00
Direct labor 4.00
Variable manufacturing overhead 1.50
Variable manufacturing cost per unit $ 12.50
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Variable manufacturing cost per unit (a) $ 12.50
Number of units produced (b) 20,000
Total variable manufacturing cost (a) × (b) $ 250,000
Average fixed manufacturing overhead per unit (c) $ 5.00
Number of units produced (d) 20,000
Total fixed manufacturing cost (c) × (d) 100,000
Total product cost $ 350,000
________________________________________
Note: The average fixed manufacturing overhead cost per unit of $5.00 is valid for only one level of activity—20,000 units produced.
2.
Sales commissions $ 1.00
Variable administrative expense 0.50
Variable selling and administrative per unit $ 1.50
________________________________________
Variable selling and admin. per unit (a) $ 1.50
Number of units sold (b) 22,000
Total variable selling and admin. expense (a) × (b) $ 30,000
Average fixed selling and administrative expense per unit ($3.50 fixed selling + $2.50 fixed administrative) (c) $ 6.00
Number of units sold (d) 20,000
Total fixed selling and administrative expense (c) × (d) 120,000
Total period cost $ 150,000
________________________________________
Note: The average fixed selling and administrative expense per unit of $6.00 is valid for only one level of activity—20,000 units sold.
3.
Direct materials $ 7.00
Direct labor 4.00
Variable manufacturing overhead 1.50
Variable manufacturing cost per unit $ 12.50
________________________________________
Variable manufacturing cost per unit (a) $ 12.50
Number of units produced (b) 22,000
Total variable manufacturing cost (a) × (b) $ 275,000
Total fixed manufacturing cost (see requirement 1) 100,000
Total product cost $ 375,000
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4.
Sales commissions $ 1.00
Variable administrative expense 0.50
Variable selling and administrative per unit $ 1.50
________________________________________
Variable selling and admin. per unit (a) $ 1.50
Number of units sold (b) 18,000
Total variable selling and admin. expense (a) × (b) $ 27,000
Total fixed selling and administrative expense (see requirement 2) 120,000
Total period cost $ 147,000
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Exercise 1-9 Fixed, Variable, and Mixed Costs [LO1-4]
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:
Amount per Unit
Direct materials $ 7.00
Direct labor $ 4.00
Variable manufacturing overhead $ 1.50
Fixed manufacturing overhead $ 5.00
Fixed selling expense $ 3.50
Fixed administrative expense $ 2.50
Sales commissions $ 1.00
Variable administrative expense $ 0.50
________________________________________
Required:
1. If 18,000 units are produced and sold, what is the variable cost per unit produced and sold?
2. If 22,000 units are produced and sold, what is the variable cost per unit produced and sold?
3. If 18,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?
4. If 22,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?
5. If 18,000 units are produced, what is the average fixed manufacturing cost per unit produced?
6. If 22,000 units are produced, what is the average fixed manufacturing cost per unit produced?
7. If 18,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?
8. If 22,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?
(Round per unit values to 2 decimal places.)
Garrison 16e Rechecks 2017-08-07
Explanation
1.
Direct materials $ 7.00
Direct labor 4.00
Variable manufacturing overhead 1.50
Sales commissions 1.00
Variable administrative expense 0.50
Variable cost per unit sold $ 14.00
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2.
Direct materials $ 7.00
Direct labor 4.00
Variable manufacturing overhead 1.50
Sales commissions 1.00
Variable administrative expense 0.50
Variable cost per unit sold $ 14.00
________________________________________
3.
Variable cost per unit sold (a) $ 14.00
Number of units sold (b) 18,000
Total variable costs (a) × (b) $ 252,000
________________________________________
4.
Variable cost per unit sold (a) $ 14.00
Number of units sold (b) 22,000
Total variable costs (a) × (b) $ 308,000
________________________________________
Note: The key to answering questions 5 through 8 is to calculate the total fixed manufacturing overhead costs as follows:
Average fixed manufacturing overhead cost per unit (a) $ 5.00
Number of units produced (b) 20,000
Total fixed manufacturing overhead (a) × (b) $ 100,000
________________________________________
Note: The average fixed manufacturing overhead cost per unit of $5.00 is valid for only one level of activity—20,000 units produced.
Once students understand that total fixed manufacturing overhead is $100,000, questions 5 through 8 are answered as follows:
5.
The average fixed manufacturing overhead per unit is:
Total fixed manufacturing overhead (a) $ 100,000
Number of units produced (b) 18,000
Average fixed manufacturing cost per unit produced (rounded) (a) ÷ (b) $ 5.56
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6.
The average fixed manufacturing overhead per unit is:
Total fixed manufacturing overhead (a) $ 100,000
Number of units produced (b) 22,000
Average fixed manufacturing cost per unit produced (rounded) (a) ÷ (b) $ 4.55
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7.
The total fixed manufacturing overhead remains unchanged at $100,000.
8.
The total fixed manufacturing overhead remains unchanged at $100,000.
Exercise 1-12 Product and Period Cost Flows [LO1-3]
The Devon Motor Company produces automobiles. On April 1st, the company had no beginning inventories and it purchased 8,000 batteries at a cost of $80 per battery. It withdrew 7,600 batteries from the storeroom during the month. Of these, 100 were used to replace batteries in cars being used by the company’s traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in cars being produced by the company. Of the cars in production during April, 90 percent were completed and transferred from work in process to finished goods. Of the cars completed during the month, 30 percent were unsold at April 30th.
Required:
1. Determine the cost of batteries that would appear in each of the following accounts on April 30th.
Explanation
1a.
The cost of batteries in Raw Materials:
Beginning raw materials inventory 0
Plus: Battery purchases 8,000
Batteries available 8,000
Minus: Batteries withdrawn 7,600
Ending raw materials inventory (a) 400
Cost per battery (b) $ 80
Raw materials on April 30th (a) × (b) $ 32,000
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1b.
The cost of batteries in Work in Process:
Beginning work in process inventory 0
Plus: Batteries withdrawn for production 7,500
Batteries available 7,500
Minus: Batteries transferred to finished goods (7,500 × 90%) 6,750
Ending work in process inventory (a) 750
Cost per battery (b) $ 80 [Show Less]