Direct verse indirect cost Estep Construction Company is composed of two divisions: (1) Home Construction and (2) Commercial Construction .The Home Construction Division is in the process of building 12 houses and the Commercial Division is working on 3 projects. Cost items of the company follows. Cost of building permits. Materials used in commercial construction projects. Depreciation on home building equipment (small tools such as hammers or saws) Company president’s salary Depreciation on crane used in commercial construction. Depreciation on home office building. Salary of corporate office manager. Wages of workers assigned to a specific construction project. Supplies used by the commercial constructions division. Labor on a particular house. Salary of the supervisor of commercial construction project. Supplies, such as glue and nails used by the Home Construction Division Required A. Identify each cost as being a direct or indirect cost assuming the cost objects are the individual products (houses or projects). B. Identify each cost as being a direct or indirect cost assuming the cost objects are the two divisions. C. Identify each cost as being a direct or indirect cost assuming the cost object is Estep Construction Company as a whole.
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Direct verse indirect cost Estep Construction Company is composed of two divisions: (1) Home Construction and (2) Commercial Construction .The Home Construction Division is in the process of building 12 houses and the Commercial Division is working on 3 projects. Cost items of the company follows. Cost of building permits. Materials used in commercial construction projects. Depreciation on home building equipment (small tools such as hammers or saws) Company president’s salary Depreciation on crane used in commercial construction. Depreciation on home office building. Salary of corporate office manager. Wages of workers assigned to a specific construction project. Supplies used by the commercial constructions division. Labor on a particular house. Salary of the supervisor of commercial construction project. Supplies, such as glue and nails used by the Home Construction Division Required A. Identify each cost as being a direct or indirect cost assuming the cost objects are the individual products (houses or projects). B. Identify each cost as being a direct or indirect cost assuming the cost objects are the two divisions. C. Identify each cost as being a direct or indirect cost assuming the cost object is Estep Construction Company as a whole.
To identify each cost as a direct or indirect cost, we need to determine if the cost can be easily traced to a specific cost object (individual products, divisions, or the company as a whole) or if it is more difficult to allocate.
A. Direct or Indirect Cost for Individual Products (Houses or Projects):
1. Cost of building permits - Indirect Cost (This cost cannot be easily allocated to individual products as it is incurred for the overall construction process)
2. Materials used in commercial construction projects - Direct Cost (These materials are specifically used for the commercial construction projects)
3. Depreciation on home building equipment (small tools) - Indirect Cost (This cost cannot be easily allocated to individual products as the depreciation is for general equipment)
4. Company president's salary - Indirect Cost (This salary cannot be directly attributed to individual products)
5. Depreciation on crane used in commercial construction - Direct Cost (The depreciation is specifically for the crane used in commercial construction)
6. Depreciation on home office building - Indirect Cost (This cost cannot be easily allocated to individual products)
7. Salary of corporate office manager - Indirect Cost (This salary cannot be directly attributed to individual products)
8. Wages of workers assigned to a specific construction project - Direct Cost (These wages are directly related to the specific construction project)
9. Supplies used by the commercial construction division - Direct Cost (These supplies are specifically used by the commercial construction division)
10. Labor on a particular house - Direct Cost (The labor is specifically allocated to a particular house)
11. Salary of the supervisor of commercial construction project - Indirect Cost (This salary cannot be directly attributed to individual products)
12. Supplies used by the Home Construction Division - Direct Cost (These supplies are specifically used by the Home Construction Division)
B. Direct or Indirect Cost for Two Divisions:
To determine the direct or indirect costs for the two divisions, we consider if the cost is specifically incurred by one division or if it is shared between both divisions.
1. Cost of building permits - Indirect Cost (Shared between both divisions)
2. Materials used in commercial construction projects - Direct Cost (Specifically used by the commercial construction division)
3. Depreciation on home building equipment (small tools) - Indirect Cost (Shared between both divisions)
4. Company president's salary - Indirect Cost (Shared between both divisions)
5. Depreciation on crane used in commercial construction - Direct Cost (Specifically used by the commercial construction division)
6. Depreciation on home office building - Indirect Cost (Shared between both divisions)
7. Salary of corporate office manager - Indirect Cost (Shared between both divisions)
8. Wages of workers assigned to a specific construction project - Indirect Cost (Shared between both divisions)
9. Supplies used by the commercial construction division - Direct Cost (Specifically used by the commercial construction division)
10. Labor on a particular house - Indirect Cost (Shared between both divisions)
11. Salary of the supervisor of commercial construction project - Direct Cost (Specifically for the commercial construction division)
12. Supplies used by the Home Construction Division - Direct Cost (Specifically used by the Home Construction Division)
C. Direct or Indirect Cost for Estep Construction Company as a Whole:
To determine the direct or indirect costs for the company as a whole, we consider if the cost is incurred for the entire company or if it is allocated to specific divisions or products.
1. Cost of building permits - Indirect Cost (Incurred for the overall construction process)
2. Materials used in commercial construction projects - Direct Cost (Specifically used by the commercial construction division)
3. Depreciation on home building equipment (small tools) - Indirect Cost (Incurred for the overall company)
4. Company president's salary - Indirect Cost (Incurred for the overall company)
5. Depreciation on crane used in commercial construction - Direct Cost (Specifically used by the commercial construction division)
6. Depreciation on home office building - Indirect Cost (Incurred for the overall company)
7. Salary of corporate office manager - Indirect Cost (Incurred for the overall company)
8. Wages of workers assigned to a specific construction project - Indirect Cost (Incurred for the overall company)
9. Supplies used by the commercial construction division - Direct Cost (Specifically used by the commercial construction division)
10. Labor on a particular house - Indirect Cost (Incurred for the overall company)
11. Salary of the supervisor of commercial construction project - Direct Cost (Specifically for the commercial construction division)
12. Supplies used by the Home Construction Division - Direct Cost (Specifically used by the Home Construction Division)
Remember, this categorization of costs as direct or indirect may vary depending on the specific circumstances and cost allocation methods used by the company.