Question

Franklin Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality control expert $100,800 per year to inspect completed tents before they are shipped to customers. Assume that the company completed 1,590 tents in January and 1,230 tents in February. For the entire year, the company expects to produce 18,000 tents.

Required

C) If the cost objective is to determine the cost per tent, is the expert’s salary a direct or an indirect cost?

D) How much of the expert’s salary should be allocated to tents produced in January and February?

C) If the cost objective is to determine the cost per tent, is the expert’s salary a direct or an indirect cost?

Is the expert’s salary a direct or an indirect cost?

D) How much of the expert’s salary should be allocated to tents produced in January and February? (Do not round intermediate calculations).

Month	Amount Allocated
January
February

Answer 1

Requirement C

Expert’s Salary should be taken as an indirect cost.

The salary of expert is a Manufacturing overhead hence an indirect cost of production.

Requirement D

Calculation of Predetermined overhead rate
(A)	Total Annual cost	$ 100,800.00
(B)	Estimated units to be produced in year	18000
(A/B)	Predetermined overhead rate per tent	$               5.60

Allocation of Expert’s salary to January and February

Month	Amount Allocated
January	$ 8,904.00*
February	$ 6,888.00**

$5.60 x 1590

**$5.60 x 1230