Question:
Cost allocation in a manufacturing company
Spring Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality control expert $108,000 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 15,000 tents.
Required
a. Explain how changes in the cost driver (number of tents inspected) affect the total amount of fixed inspection cost.
b. Explain how changes in the cost driver (number of tents inspected) affect the amount of fixed inspection cost per unit.
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?