Melinda's Custom Homes, a construction company that builds custom-designed houses, incurred costs for the following items. Wages paid to construction crew$105,000Wood$176,000Production supervisor's salary$52,000Billboard advertising the company$9,000Rent on office space$12,000Depreciation on tools used at construction sites$32,500Sheet rock$84,000Machine purchased to cut a special kind of tile requested by one customer-cannot be re-used$8,300Gas for the company truck, used to haul supplies to construction sites$2,800Paint$9,600Fees paid to electrical contractor, who charges a set amount per house$12,500Depreciation on the company truck, used to haul supplies to construction sites (straight-line)$10,000Insurance premiums$13,800President's salary$101,000Bricks$89,000Calculate each of
the following, where the cost object is the houses built by the company: a. Total variable costs b. Total fixed costs c. Total direct costs d. Total indirect costs
What will be an ideal response?
. Total variable costs: $478,900 = $105,000 + $176,000 + $84,000 + $2,800 + $9,600 + $12,500 + $89,000
b. Total fixed costs: $238,600 = $52,000 + $9,000 + $12,000 + $32,500 + $8,300 + $10,000 + $13,800 + $101,000
c. Total direct costs: $484,400 = $105,000 + $176,000 + $84,000 + $8,300 + $9,600 + $12,500 + $89,000
d. Total indirect costs: $233,100 = $52,000 + $9,000 + $12,000 + $32,500 + $2,800 + $10,000 + $13,800 + $101,000
Variable costs are those that change, in total, in direct proportion to changes in activity levels. Fixed costs are those that stay the same, in total, regardless of activity level. Costs that can be traced directly to a specific cost object are direct costs. Costs that cannot be traced to a specific cost object, or that are not worth the effort of tracing, are indirect costs.
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