Funz Company, which produces wooden toys, is about to adopt a lean operating environment.

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.

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