Question

Camp Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality control expert $80,000 per year to inspect completed tents before they are shipped to customers. Assume that the company completed 1,600 tents in January and 1,200 tents in February. For the entire year, the company expects to produce 20,000 tents.

Required
a. If the cost objective is to determine the cost per tent, is the expert's salary a direct or an indirect cost?
b. How much of the expert's salary should be allocated to tents produced in January and February?

Answer 1

Camp Manufacturing Company

a. The expert's salary is an indirect cost. It is a fixed expense per year. It does not vary with the number of tents produced.

b. Expert's salary that should be allocated to tents produced in January and February:

January = $6,400

February = $4,800

Step-by-step explanation:

a) Data and Calculations:

Annual cost for quality control inspections = $80,000

Estimated annual production for the year = 20,000 tents

Unit cost of quality control inspections per tent = $4 ($80,000/20,000)

Units produced in:

January = 1,600

February = 1,200

a. The expert's salary is an indirect cost. It is fixed per year. It does not vary with the number of tents produced.

b. Expert's salary that should be allocated to tents produced in January and February:

January = $6,400 ($4 * 1,600)

February = $4,800 ($4 * 1,200)