JLR Enterprises provides consulting services throughout California and uses a job-order costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by JLR, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
JLR Enterprises provides consulting services throughout California and uses a
to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in
contrast, other costs incurred by JLR, but not identifiable with specific clients, are charged to jobs by
using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead,
and a markup.
JLR’s director of cost management, Brent Dean, anticipates the following costs for the upcoming
year:
■ Problem 3–47
Job-Order Costing in a Consulting
Firm
(LO 3-1, 3-2, 3-4, 3-8)
1. Traceable costs:
$2,500,000
Cost
Percentage of Cost Directly
Traceable to Clients
Professional staff salaries ................................ $2,500,000 ..................................... 80%
Administrative support staff ............................. 300,000 ..................................... 60%
Travel ................................................................ 250,000 ..................................... 90%
Photocopying ................................................... 50,000 ..................................... 90%
Other operating costs ...................................... 100,000 ..................................... 50%
Total .............................................................. $3,200,000 .....................................
The firm’s partners desire to make a $640,000 profit for the firm and plan to add a percentage
markup on total cost to achieve that figure.
On March 10, JLR completed work on a project for Martin Manufacturing. The following costs
were incurred: professional staff salaries, $41,000; administrative support staff, $2,600; travel, $4,500;
photocopying, $500; and other operating costs, $1,400.
Required:
1. Determine JLR’s total traceable costs for the upcoming year and the firm’s total anticipated
overhead.
2. Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs.
3. What percentage of cost will JLR add to each job to achieve its profit target?
4. Determine the total cost of the Martin Manufacturing project. How much would Martin be billed
for services performed?
5. Notice that only 50 percent of JLR’s other operating cost is directly traceable to specific client
projects. Cite several costs that would be included in this category and difficult to trace to clients.
6. Notice that 80 percent of the professional staff cost is directly traceable to specific client projects.
Cite several reasons that would explain why this figure isn’t 100 percent
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