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Classifying costs Geek Gut Company provides computer repair services for the community. Obie Won’s computer was not working, and he called Geek Chic for a home repair visit. Geek Chic Company’s technician arrived at 2:00 PM to begin work. By 4:00 PM, the problem was diagnosed as a Jailed circuit board. Unfortunately, the technician did not have a new circuit board in the truck because the technician’s previous customer had the same problem and a board was used on that visit. Replacement boards were available back at Geek Chic Company’s shop. Therefore, the technician drove back to the shop to retrieve a replacement board. From 4:00 to 5:00 mi, Geek Chic Company’s technician drove the round trip to retrieve the replacement board from the shop. At 5:00 PM. the technician was back on the job at Obie’s home. The replacement procedure is somewhat complex because a variety of tests must be performed once the board is installed. The job was completed at 6:00 PM . Obie’s repair bill showed the following: Circuit board $100 Labor charges 300 Total $400 Obie was surprised at the size of the bill and asked for more detail supporting the calculations. Geek Chic Company responded with the following explanations: Cost of materials: Purchase price of circuit board $ 80 Markup on purchase price to cover storage and handling 20 Total materials charge $100 The labor charge per hour is detailed as follows: 2:00-3:00 PM $ 70 3:00-4:00 PM 60 4:00-5:00 PM 80 5:00-6:00 PM 90 Total labor charge $ 300 Further explanations in the differences in the hourly rates are as follows: first hour: Base labor rate…………………….. $42 Fringe benefits……………………… 10 Overhead(other than storage and handling)…….. 8 Total base labor rate…………… $ 60 Additional charge for first hour of any job to cover the cost of vehicle depreciation, fuel, and employee time in transit. A 30-minute transit time is assumed……….. 10 $70 Third hour: Base labor rate ………… $ 60 The trip back to the shop includes vehicle depreciation and fuel; therefore, a charge was added to the hourly rate to cover these costs. The round trip took an hour……… 20 $80 Fourth hour: Base labor rate ………… $60 Overtime premium for time worked in excess of an eight-hour day(starting at 5:00 PM) is equal to 1.5 times the base rate…………………………. 30 $ 90 1. If you were in Obie's position, how would you respond to the bill? Are there parts of the bill that appear incorrect to you? If so, what argument would you employ to convince Geek Chic Company that the bill is too high? 2. Use the headings that follow to construct a table. Fill in the table by listing the costs identified in the activity in the left-hand column. For each cost, place a check mark in the appropriate column identifying the correct cost classification. Assume that each service call is a job. Cost Direct Materials Direct Labor Overhead

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 18, Problem 18.5CP
Textbook Problem

Classifying costs

Geek Gut Company provides computer repair services for the community. Obie Won’s computer was not working, and he called Geek Chic for a home repair visit. Geek Chic Company’s technician arrived at 2:00 PM to begin work. By 4:00 PM, the problem was diagnosed as a Jailed circuit board. Unfortunately, the technician did not have a new circuit board in the truck because the technician’s previous customer had the same problem and a board was used on that visit. Replacement boards were available back at Geek Chic Company’s shop. Therefore, the technician drove back to the shop to retrieve a replacement board. From 4:00 to 5:00 mi, Geek Chic Company’s technician drove the round trip to retrieve the replacement board from the shop.

At 5:00 PM. the technician was back on the job at Obie’s home. The replacement procedure is somewhat complex because a variety of tests must be performed once the board is installed. The job was completed at 6:00 PM.

Obie’s repair bill showed the following:

Circuit board $100
Labor charges 300
Total $400

Obie was surprised at the size of the bill and asked for more detail supporting the calculations. Geek Chic Company responded with the following explanations:

Cost of materials:  
Purchase price of circuit board $ 80
Markup on purchase price to cover storage and handling 20
Total materials charge $100

The labor charge per hour is detailed as follows:

2:00-3:00 PM $ 70
3:00-4:00 PM 60
4:00-5:00 PM 80
5:00-6:00 PM 90
Total labor charge $ 300

Further explanations in the differences in the hourly rates are as follows:

first hour:  
Base labor rate…………………….. $42
Fringe benefits……………………… 10
Overhead(other than storage and handling)…….. 8
Total base labor rate…………… $ 60
Additional charge for first hour of any job to cover the cost of vehicle depreciation, fuel, and employee time in transit. A 30-minute transit time is assumed……….. 10
  $70
Third hour:  
Base labor rate ………… $ 60
The trip back to the shop includes vehicle depreciation and fuel; therefore, a charge was added to the hourly rate to cover these costs. The round trip took an hour……… 20
  $80
Fourth hour:  
Base labor rate ………… $60
Overtime premium for time worked in excess of an eight-hour day(starting at 5:00 PM) is equal to 1.5 times the base rate…………………………. 30
  $ 90

1.    If you were in Obie's position, how would you respond to the bill? Are there parts of the bill that appear incorrect to you? If so, what argument would you employ to convince Geek Chic Company that the bill is too high?

2.    Use the headings that follow to construct a table. Fill in the table by listing the costs identified in the activity in the left-hand column. For each cost, place a check mark in the appropriate column identifying the correct cost classification. Assume that each service call is a job.

Cost Direct Materials Direct Labor Overhead

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Chapter 18 Solutions

Accounting
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Ch. 18 - Management process Three phases of the management...Ch. 18 - Management process Three phases of the management...Ch. 18 - Direct materials, direct labor, and factory...Ch. 18 - Direct materials, direct labor, and factory...Ch. 18 - Prime and conversion costs Identify the following...Ch. 18 - Prime and conversion costs Identify the following...Ch. 18 - Product and period costs Identify the following...Ch. 18 - Product and period costs Identify the following...Ch. 18 - Cost of goods sold, cost of goods manufactured...Ch. 18 - Cost of goods sold, cost of goods manufactured...Ch. 18 - Classifying costs as materials, labor, or factory...Ch. 18 - Classifying costs as materials, labor, or factory...Ch. 18 - Classifying costs as factory overhead Which of the...Ch. 18 - Classifying costs as product or period costs For...Ch. 18 - Concepts and terminology From the choices...Ch. 18 - Concepts and terminology From the choices...Ch. 18 - Classifying costs in a service company A partial...Ch. 18 - Sustainability and eco-efficiency measures Four...Ch. 18 - Classifying costs The following report was...Ch. 18 - Financial statements of a manufacturing firm The...Ch. 18 - Manufacturing company balance sheet Partial...Ch. 18 - Cost of direct materials used in production for a...Ch. 18 - Cost of goods manufactured for a manufacturing...Ch. 18 - Cost of goods manufactured for a manufacturing...Ch. 18 - Income statement for a manufacturing company Two...Ch. 18 - Statement of cost of goods manufactured for a...Ch. 18 - Cost of goods sold, profit margin, and net income...Ch. 18 - Cost flow relationships The following information...Ch. 18 - Uses of managerial accounting in a service company...Ch. 18 - Classifying costs The following is a list of costs...Ch. 18 - Classifying costs The following is a list of costs...Ch. 18 - Cost classifications for a service company A...Ch. 18 - Manufacturing income statement, statement of cost...Ch. 18 - Statement of cost of goods manufactured and income...Ch. 18 - Classifying costs The following is a list of costs...Ch. 18 - Classifying costs The following is a list of costs...Ch. 18 - Cost classifications for a service company A...Ch. 18 - Manufacturing income statement, statement of cost...Ch. 18 - Statement of cost of goods manufactured and income...Ch. 18 - Ethics in Action Avett Manufacturing Company...Ch. 18 - Communication Todd Johnson is the vice president...Ch. 18 - Managerial accounting in the management process...Ch. 18 - Classifying costs Geek Gut Company provides...Ch. 18 - Using managerial accounting Information The...

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