Direct and Indirect Costs in Lean and Traditional Manufacturing Environments
Funz Company, which produces wooden toys, is about to adopt a lean operating environment. In anticipation of the change, Letty Hernandez, Funz’s controller, prepared the following list of costs for December:
|
Wood |
$1,200 |
Insurance–plant |
$ 324 |
|
Bolts |
32 |
President’s salary |
4,000 |
|
Small tools |
54 |
Engineering labor |
2,700 |
|
Depreciation–plant |
450 |
Utilities |
1,250 |
|
Depreciation–machinery |
275 |
Building occupancy |
1,740 |
|
Direct labor |
2,675 |
Supervision |
2,686 |
|
Indirect labor |
890 |
Operating supplies |
254 |
|
Purchased parts |
58 |
Repairs and maintenance |
198 |
|
Materials handling |
74 |
Employee benefits |
2,654 |
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 lean environment.
3. Assume that the costs incurred in the lean environment are for a work cell that completed 1,250 toy cars in December. Compute the total direct cost and the direct cost per unit for the cars produced.