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Job order decision making and rate deficiencies RIRA Company makes attachments such as backhoes and grader and bulldozer blades for construction equipment. The company uses a job order cost system. Management is concerned about cost performance and evaluates the job cost sheets to learn more about the cast effectiveness of the operations. To facilitate a comparison, the cost sheet for Job 206 (50 backhoe buckets completed in October) was compared with Job 228, which was for 75 backhoe buckets completed in December. The two job cost sheets follow: Management is concerned with the increase in unit casts over the months from October to December. To understand what has occurred, management interviewed the purchasing manager and quality manager. Purchasing Manager: Prices have been holding steady for our raw materials during the first half of the year. I found a new supplier for our bulk steel that was willing to offer a better price than we received in the past. I saw these lower steel prices and jumped at them, knowing that a reduction in steel prices would have a very favorable impact on our costs. Quality Manager: Something happened around mid-year. All of a sudden, we were experiencing problems with respect to the quality of our steel. As a result, we've been having all sorts of problems on the shop floor in our foundry and welding operation. 1. Analyze the two job cost sheets and identify why the unit costs have changed for the backhoe buckets. Complete the following schedule to help in your analysis: Item Input Quantity per Unit—Job 206 Input Quantity per Unit—Job 228 Steel Foundry labor Weld inn labor 2. How would you interpret what has happened in light of your analysis and the interviews?

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 19, Problem 19.4CP
Textbook Problem

Job order decision making and rate deficiencies

RIRA Company makes attachments such as backhoes and grader and bulldozer blades for construction equipment. The company uses a job order cost system. Management is concerned about cost performance and evaluates the job cost sheets to learn more about the cast effectiveness of the operations. To facilitate a comparison, the cost sheet for Job 206 (50 backhoe buckets completed in October) was compared with Job 228, which was for 75 backhoe buckets completed in December. The two job cost sheets follow:

Chapter 19, Problem 19.4CP, Job order decision making and rate deficiencies RIRA Company makes attachments such as backhoes and , example  1

Chapter 19, Problem 19.4CP, Job order decision making and rate deficiencies RIRA Company makes attachments such as backhoes and , example  2

Management is concerned with the increase in unit casts over the months from October to December. To understand what has occurred, management interviewed the purchasing manager and quality manager.

Purchasing Manager: Prices have been holding steady for our raw materials during the first half of the year. I found a new supplier for our bulk steel that was willing to offer a better price than we received in the past. I saw these lower steel prices and jumped at them, knowing that a reduction in steel prices would have a very favorable impact on our costs.

Quality Manager: Something happened around mid-year. All of a sudden, we were experiencing problems with respect to the quality of our steel. As a result, we've been having all sorts of problems on the shop floor in our foundry and welding operation.

1. Analyze the two job cost sheets and identify why the unit costs have changed for the backhoe buckets. Complete the following schedule to help in your analysis:

Item Input Quantity per Unit—Job 206 Input Quantity per Unit—Job 228
Steel    
Foundry labor    
Weld inn labor    

2. How would you interpret what has happened in light of your analysis and the interviews?

Expert Solution

(1)

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 analyze: The two job cost sheets and identify the reason of change in unit cost.

Explanation of Solution

The unit cost are mainly influenced by price and quantity of inputs. With respect to price, the cost of steel has declined from $1,200 to $1,100 per ton of steel. This results in purchase manager decision to reduce the cost of raw materials by shifting to new vendor. There were no input prices being observed, but there is significant change in input quantities. The inputs for components were unchanged between two jobs.

Job 206:

 
  Direct material / Labor hour (1) Number of backhoe buckets completed (2) Input quantity per unit
(3) = (1) ÷ (2)
Steel input 105 tons 50 units 2.10 Tons
Foundry labor 400hours 50 units 2...
Expert Solution

(2)

To determine

To interpret: the results and analysis of changes in unit cost.

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Chapter 19 Solutions

Accounting
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Ch. 19 - Issuance of materials On May 7, Bergan Company...Ch. 19 - Issuance of materials On August 4, Rothchild...Ch. 19 - Direct labor costs During May, Bergan Company...Ch. 19 - Direct labor costs During August, Rothchild...Ch. 19 - Factory overhead costs During May, Bergan Company...Ch. 19 - Factory overhead costs During August, Rothchild...Ch. 19 - Applying factory overhead Bergan Company estimates...Ch. 19 - Applying factory overhead Rothchild Company...Ch. 19 - Job costs At the end of May, Bergan Company had...Ch. 19 - Job costs At the end of August, Rothchild Company...Ch. 19 - Transactions in a job order cost system Five...Ch. 19 - Cost of materials issuances under the FIFO method...Ch. 19 - Entry for issuing materials Materials issued for...Ch. 19 - Entries for materials GenX Furnishings...Ch. 19 - Entry for factory labor costs A summary of the...Ch. 19 - Entry for factory labor costs The weekly time...Ch. 19 - Entries for direct labor and factory overhead...Ch. 19 - Factory overhead rates, entries and account...Ch. 19 - Predetermined factory overhead rate Street....Ch. 19 - Predetermined factory overhead rate Poehling...Ch. 19 - Entry for jobs completed; cost of unfinished jobs...Ch. 19 - Entries for factory costs and jobs completed Old...Ch. 19 - Financial statements of a manufacturing firm The...Ch. 19 - Decision making with job order costs Alvarez...Ch. 19 - Decision making with job order costs Raneri...Ch. 19 - Job order cost accounting for a Service company...Ch. 19 - Job order cost accounting for a service company...Ch. 19 - Entries for costs in a job order cost system...Ch. 19 - Entries and schedules for unfinished jobs and...Ch. 19 - Job order cost sheet Remnant Carpet Company sells...Ch. 19 - Analyzing manufacturing cost accounts Fire Rock...Ch. 19 - Flow of costs and income statement Ginocera Inc....Ch. 19 - Entries for costs in a job order cost system Royal...Ch. 19 - Entries and schedules for unfinished Jobs and...Ch. 19 - Job order cost sheet Stretch and Trim Carpet...Ch. 19 - Analyzing manufacturing cost accounts Clapton...Ch. 19 - Flow of costs and income statement Technology...Ch. 19 - Communication TAC Industries sells heavy equipment...Ch. 19 - Predetermined overhead rates As an assistant cost...Ch. 19 - Communication Carol Creedence, the plant manager...Ch. 19 - Job order decision making and rate deficiencies...Ch. 19 - Recording manufacturing costs Todd Lay just began...

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