Direct versus indirect costs
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 Construction Division is working on 3 projects. Cost items of the company follow. 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 offi ce manager Wages of workers assigned to a specific construction project Supplies used by the Commercial Construction Division Labor on a particular house Salary of the supervisor of commercial construction projects 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.