Exercise 12-7A (Algo) Job-order costing in a service company LO 12-2 Jordan Condos Corporation is a small company owned by Dennis Hatch. It leases three condos of differing sizes to customers as vacation facilities. Labor costs for each condo consist of maid service and maintenance cost. Other direct operating costs consist of interest and depreciation. The direct operating costs for each condo follow Condo 1 Condo 2 Condo 3 Total Direct Labor $17,800 18,500 22,250 $58,550 Income eamed Other Direct Operating Costs. $ 43,800 42,000 62,000 $147,800 Indirect operating expenses, which amounted to $44,340, are allocated to the condos in proportion to the amount of other direct operating costs incurred for each. Required a. Assuming that the amount of rent revenue from Condo 2 is $105,000, what amount of income did it earn? (Do not round. intermediate calculations.) A
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- Decision making with job order costs Alvarez Manufacturing Inc. is a job shop. The management of Alvarez Manufacturing Inc. uses the cost information from the job sheets to assess cost performance. Information on the total cost, product type, and quantity of items produced is as follows: Date Job No. Product Quantity Amount Jan. 2 1 TT 520 16,120 Jan. 15 22 SS 1,610 20,125 Feb. 3 30 SS 1,420 25,560 Mar. 7 41 TT 670 15,075 Mar. 24 49 SLK 2,210 22,100 May 19 58 SLK 2,550 31,875 June 12 65 TT 620 10,540 Aug. 18 78 SLK 3,110 48,205 Sept. 2 82 SS 1,210 16,940 Nov. 14 92 TT 750 8,250 Dec. 12 98 SLK 2,700 52,650 a. Develop a graph for each product (three graphs), with Job Number (in date order) on the horizontal axis and Unit Cost on the vertical axis. Use this information to determine Alvarez Manufacturing Inc.'s cost performance over time for the three products. b. What additional information would you require in order to investigate Alvarez Manufacturing Inc.s cost performance more precisely?Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What do you think is a possible solution?Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What did the engineer mean about the large overhead rate being a disadvantage when plating bids and seeking new business?
- Communication The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. Home Theater Speakers Wireless Speakers Wireless Headphones Total Sales 1,500,000 1,200,000 900,000 3,600,000 Cost of goods sold 1,050,000 720,000 810,000 2,580,000 Gross profit 450,000 480,000 90,000 1,020,000 Marketing expenses 600,000 120,000 72,000 792,000 Income from operations (150,000) 360,000 18,000 228,000 In addition, the controller interviewed the vice president of marketing, who provided the following insight into the company's three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently bunched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. Based on the information provided: 1. Calculate the ratio of gross profit to sales and the ratio of income from operations to sales for each product. 2. Write a brief (one page) memo using the product profitability report and the calculations in (1) to make recommendations to management with respect to strategies for the three products.LO.4 (Cost accumulation; assigning costs to jobs) Gigi LeBlanc is an advertis-ing consultant who tracks costs for her jobs using a job order costing system. During September, LeBlanc and her staff worked on and completed jobs for the following companies:Reliant CompanyDumas Manufacturing Omaha Inc.Direct material cost $7,800 $14,200 $19,800Direct labor cost $5,580 $18,000 $28,350Number of promotions designed 3 10 8Direct material can be traced to each job because these costs are typically associated with specifi c advertising campaigns. Based on historical data, LeBlanc has calculated an overhead charge of $58 per direct labor hour. Th e normal labor cost per hour is $45.a. Determine the total cost for each of the advertising accounts for the month.b. Determine the cost per promotion developed for each client. (Round to the nearest dollar.)c. LeBlanc charges $8,600 per promotion. What was her net income for the month, assuming actual overhead for the month was $50,000? Adjust for…Problem 7-65 (Algo) Job Costing and Ethics (LO 7-2, 3, 5) Old Port Shipyards does work for both the U.S. Navy and private shipping companies. Old Port's major business is renovating ships, which it does at one of two company dry docks referred to by the names of the local towns: Olde Town and Newton. Data on operations and costs for the two dry docks follow: Olde Town Newton Overhead cost $ 48,600,000 $ 91,800,000 Direct labor-hours 180,000 180,000 Virtually all dry dock costs consist of depreciation. The Newton dry dock is much newer, so the depreciation on it is much higher. Dry dock overhead is charged to jobs based on direct labor-hours for the specific dock. Old Port is about to start two jobs, one for the Navy under a cost-plus contract and one for a private shipping company for a fixed fee. Both jobs will require the same number of hours. You have been asked to prepare some costing information. Your supervisor tells you that she is sure the…
- Exercise 7-42 (Algo) Job Costing in a Service Organization (LO 7-4) Allocation Busters (AB) is a dispute mediation firm offering services to firms in disputes about cost allocations with government agencies. For March, AB worked 440 hours for Massive Airframes and 671 hours for Gigantic Drydocks. AB bills clients at the rate of $515 per hour; labor cost for its professional staff is $210 per hour. Overhead costs in March totaled $41,010. Overhead is applied to clients at $44 per labor-hour. In addition, AB had $199,700 in marketing and administrative costs. All transactions are on account. All services were billed. Transaction Description (a) Record Labor cost (b) Record Applied Service Overhead (c) Record Cost of services billed (d) Record Actual Service Overhead Required: a. Show labor and overhead cost flows through T-accounts. b. Prepare an income statement for the company for March.Problem 2-18 (Algo) Job-Order Costing for a Service Company [LO2-1, LO2-2, LO2-3] Speedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics’ hourly wages. Speedy’s overhead costs include various items, such as the shop manager’s salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room. The company applies all of its overhead costs to jobs based on direct labor-hours. At the beginning of the year, it made the following estimates: Direct labor-hours required to support estimated output 28,000 Fixed overhead cost $ 364,000 Variable overhead cost per direct labor-hour $ 1.00 Required: 1. Compute the predetermined overhead rate. 2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with…Exercise 9-45 (Algo) Activity-Based Costing in a Service Environment (LO 9-3, 4, 5) Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believes that the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty employees worked a total of 39,000 hours last year, 28,000 on residential jobs and 11,000 on commercial jobs. Wages were $14 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Because of increased competition for commercial accounts, EL&P can charge $37 per hour for residential work, but only $29 per hour for commercial work. Required: a. If overhead for the year was $126,680, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round…
- Job order costing (CMA adapted) (LO 5) Lucy Sportswear manufactures a line of specialty T-shirts using a job order costing system. In March the company incurred the following costs to complete Job ICU2: direct materials, $13,700, and direct labor, $4,800. The company also incurred $1,400 of administrative costs and $5,600 of selling costs to complete this job. Job ICU2 required 800 machine hours. Factory overhead was applied to the job at a rate of $25 per machine hour. Required If Job ICU2 resulted in 7,000 good shirts, what was the cost of goods sold per shirt?Problem 3 Predertimed Factory Overhead Harold Corp uses the job order costing system. Factory overhead is applied to jobs on the basis of direct labor cost. The following estimates are made at the beginning of the year: Fabricating Machining Assembly Total Direct Labor 600,000 300,000 900,000 1,800,000 Fcatory overhead 1,050,000 1,200,000 270,000 2,520,000 The following are the cost required by each department. Fabricating Machining Assembly Total Direct Materials 9,000 600 4,200 13,800 Direct Labor 8,400 1,500 18,600 28,500 Factory overhead ? ? ? ? At the end of the year, the…Exercise 2-8 (Algo) Applying Overhead Cost; Computing Unit Product Cost [LO2-2, LO2-3] Newhard Company assigns overhead cost to jobs on the basis of 116% of direct labor cost. The job cost sheet for Job 313 includes $16,456 in direct materials cost and $10,900 in direct labor cost. A total of 1,250 units were produced in Job 313. Required: a. What is the total manufacturing cost assigned to Job 313? b. What is the unit product cost for Job 313?