Problem 12-1

Wemill Company makes two different products, A and B. The companys two

departments are named after the products; for example, Product A is made in Department A

and Product B is made in Department B.

Old Mill's accountant has identified the following annual costs associated with these two

products.

Financial Data

Salary of Executive Director of production division

78,000

Salary of supervisor Department A

27,000

Salary of supervisor Department B

20,100

Direct materials cost Department A

75,000

Direct materials cost Department B

150,000

Direct labor cost Department A

240,000

Direct labor cost Department B

480,000

Direct utilities cost Department A

450,000

Direct utilities cost Department B

345,000

General factorywide utilities

120,000

Production supplies

150,000

Fringe benefits

30,000

Depreciation

270,000

Nonfinancial data

Machine hours Department A

13,500

Machine hours Department B

4,500

REQUIRED

1. Identify the costs that are (1) direct costs of Department A, (2) direct costs of Department B,

and (3) indirect costs.

2. Select the appropriate cost drivers for the first two indirect costs listed from the data above and allocate these costs to

Departments A and B based on the above breakdown of the resource usage.