Direct and Indirect Costs in Lean and Traditional Manufacturing Environments
Caffene Company, which processes coffee beans into ground coffee, is about to adopt a lean operating environment. In anticipation of the change, Hattie Peralto, Caffene’s controller, prepared the following list of costs for the month:
|
Coffee beans |
$5,000 |
Insurance–plant |
$ 300 |
|
Bags |
100 |
President’s salary |
4,000 |
|
Small tools |
80 |
Engineering labor |
1,700 |
|
Depreciation–plant |
400 |
Utilities |
1,250 |
|
Depreciation–grinder |
200 |
Building occupancy |
1,940 |
|
Direct labor |
1,000 |
Supervision |
400 |
|
Indirect labor |
300 |
Operating supplies |
205 |
|
Labels |
20 |
Repairs and maintenance |
120 |
|
Materials handling |
75 |
Employee benefits |
500 |
Required
1. Identify each cost as direct or indirect, assuming that it was incurred in a traditional manufacturing setting.
2. Identify each cost as direct or indirect, assuming that it was incurred in a just-in-time (JIT) environment.
3. Assume that the costs incurred in the JIT environment are for a work cell that completed 5,000 1-pound bags of coffee during the month. Compute the total direct cost and the direct cost per unit for the bags produced.