ACC 406 Lecture Notes - Lecture 1: Indirect Costs, Fixed Cost, Variable Cost
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Kubin Companyâs relevant range of production is 21,000 to 25,000 units. When it produces and sells 23,000 units, its average costs per unit are as follows:
Average Cost per Unit | ||
Direct materials | $ | 8.10 |
Direct labor | $ | 5.10 |
Variable manufacturing overhead | $ | 2.60 |
Fixed manufacturing overhead | $ | 6.10 |
Fixed selling expense | $ | 4.60 |
Fixed administrative expense | $ | 3.60 |
Sales commissions | $ | 2.10 |
Variable administrative expense | $ | 1.60 |
2. Assume the cost object is the Manufacturing Department and that its total output is 23,000 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?
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Kubin Companyâs 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:
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?
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? (Round per unit values to 2 decimal places.)
b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?
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3. Assume the cost object is the companyâs 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 representativesâ 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?
3. Assume the cost object is the companyâs 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 representativesâ 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? (Round per unit value to 2 decimal places.)
b. When the company sells 29,250 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?
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Diego Company manufactures one product that is sold for $70 per unit in two geographic regionsâthe East and West regions. The following information pertains to the companyâs first year of operations in which it produced 41,000 units and sold 36,000 units. Variable costs per unit: Manufacturing: Direct materials $ 20 Direct labor $ 10 Variable manufacturing overhead $ 2 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 984,000 Fixed selling and administrative expenses $ 308,000 The company sold 26,000 units in the East region and 10,000 units in the West region. It determined that $150,000 of its fixed selling and administrative expenses is traceable to the West region, $100,000 is traceable to the East region, and the remaining $58,000 is a common fixed cost. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.
13. | Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions. INCOME STATEMENT
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14. Diego is considering eliminating the West region because an internally generated report suggests the regionâs total gross margin in the first year of operations was $10,000 less than its traceable fixed selling and administrative expenses. Diego believes that if it drops the West region, the East region's sales will grow by 6% in Year 2. Using the contribution approach for analyzing segment profitability and assuming all else remains constant in Year 2, what would be the profit impact of dropping the West region in Year 2? Profit will _____ by _____
15. Assume the West region invests $31,000 in a new advertising campaign in Year 2 that increases its unit sales by 20%. If all else remains constant, what would be the profit impact of pursuing the advertising campaign? Profit will _____ by _____