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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Assigning Costs to a Cost Object, Direct and Indirect Costs

Hummer Company uses manufacturing cells to produce its products (a cell is a manufacturing unit dedicated to the production of subassemblies or products). One manufacturing cell produces small motors for lawn mowers. Suppose that the motor manufacturing cell is the cost object. Assume that all or a portion of the following costs must be assigned to the cell.

  1. a. Salary of cell supervisor
  2. b. Power to heat and cool the plant in which the cell is located
  3. c. Materials used to produce the motors
  4. d. Maintenance for the cell’s equipment (provided by the maintenance department)
  5. e. Labor used to produce motors
  6. f. Cafeteria that services the plant’s employees
  7. g. Depreciation on the plant
  8. h. Depreciation on equipment used to produce the motors
  9. i. Ordering costs for materials used in production
  10. j. Engineering support (provided by the engineering department)
  11. k. Cost of maintaining the plant and grounds
  12. l. Cost of the plant’s personnel office
  13. m. Property tax on the plant and land

Required:

Classify each of the costs as a direct cost or an indirect cost to the motor manufacturing cell.

To determine

Classify each cost as indirect cost or direct cost for the motor manufacturing cell.

Explanation

Cost:

Cost can be defined as the cash and cash equivalent which is incurred against the products or its related services which will benefit the organization in the future. There are two types of costs that are direct and indirect costs.

The costs that can be identified accurately and easily in a cost object are known as a direct cost, whereas, the costs that cannot be identified properly and easily in a cost object are known as indirect costs. Indirect costs are not related to the production directly.

The table representing the classification of costs into direct and indirect cost is given below:

 Costs Assigned to CellDirect cost or Indirect cost
a.Salary of a cell supervisorDirect cost
b.Power to heat and cool the plant in which the cell is locatedIndirect cost
c.Materials used to produce the motorsDirect cost
d...

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