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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Decision making with job order costs

Raneri Trophies Inc. uses a job order cost system for determining the cost to manufacture award products (plaques and trophies). Among the company’s products is an engraved plaque that is awarded to participants who complete a training program at a local business. The company sells the plaques to the local business for $80 each.

Each plaque has a brass plate engraved with the name of the participant. Engraving requires approximately 30 minutes per name. Improperly engraved names must be redone. The plate is screwed to a walnut backboard. This assembly takes approximately 15 minutes per unit. Improper assembly must be redone using a new walnut backboard.

During the first half of the year, Raneri had two separate plaque orders. The job cost sheets for the two separate jobs indicated the following information:

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a. Why did the cost per plaque increase from $60 to $68?

b. What improvements would you recommend for Raneri Trophies Inc.

(a)

To determine

Job order costing

Job order cost system provides a separate record of each particular quantity of product that passes through the factory. Each quantity that is manufactured in the business is known as job. Job order costing is used when the products produced are significantly different from each other.

To state: The reason for increase in cost per plaque.

Explanation

There is difference in materials and labor cost in job 105 than in Job 101. The cost of plaques increased mainly due to the reason that Job 105 used more labor and materials than Job 101. Precisely, Job 101 required the same number of backboards and brass plated as the number of actual plaques shipped. But Job 105 required extra 4 more blackboards and brass plates than number actually shipped.

The main reason for increase in unit cost for Job 105 is increase in labor hours, applied overhead and direct material cost. The job 105’s labor hours have increased 3 hours more than it should have been expected for producing 30 plaques.

Supporting calculations:

The difference in materials (Job 101) is calculated as follows:

Walnut plaques
  Units
Actual units used 40
Expected units needed to product 40 plaques 40
Difference units 0

Table (1)

Brass plates
  Units
Actual units used 40
Expected units needed to product 40 plaques 40
Difference units 0

Table (2)

Engraving labor
  Hours
Actual labor hour 20
Expected labor hour needed to product 40 plaques 20
Difference hours 0

Table (3)

Assembly labor
  Hours  
Actual units used 10  
Expected labor hour needed to product 40 plaques 10  
Difference hours 0  

Table (4)

The difference in materials (Job 105) is calculated as follows:

Walnut plaques
  Units
Actual units used 34
Expected units needed to product 30 plaques 34
Difference units 4

Table (5)

Brass plates
  Units
Actual units used 34

(b)

To determine

To state: the improvements that should RT companies must do.

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