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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Job Cost, Source Documents

Spade Millhone Detective Agency performs investigative work for a variety of clients. Recently, Alban Insurance Company asked Spade Millhone to investigate a series of suspicious claims for whiplash. In each case, the claimant was driving on a freeway and was suddenly rear-ended by an Alban-insured client. The claimants were all driving old, uninsured automobiles. The Alban clients reported that the claimants suddenly changed lanes in front of them, and the accidents were unavoidable. Alban suspected that these “accidents” were the result of insurance fraud. Basically, the claimants cruised the freeways in virtually worthless cars, attempting to cut in front of expensive late-model cars that would surely be insured. Alban believed that the injuries were faked.

Rex Spade spent 37 hours shadowing the claimants and taking pictures as necessary. His surveillance methods located the office of a doctor used by all claimants. He also took pictures of claimants performing tasks that they had sworn were now impossible to perform due to whiplash injuries. Victoria Millhone spent 48 hours using the Internet to research court records in surrounding states to locate the names of the claimants and their doctors. She found a pattern of similar insurance claims for each of the claimants.

Spade Millhone Detective Agency bills clients for detective time at $120 per hour. Mileage is charged at $0.50 per mile. The agency logged in 510 miles on the Alban job. The film and developing amounted to $120.

Required:

  1. 1. Prepare a job-order cost sheet for the Alban job.
  2. 2. CONCEPTUAL CONNECTION Why is overhead not specified in the charges? How does Spade Millhone charge clients for the use of overhead (e.g., the ongoing costs of their office—supplies, paper for notes and reports, telephone, utilities)?
  3. 3. The mileage is tallied from a source document. Design a source document for this use, and make up data for it that would total the 510 miles driven on the Alban job.

1.

To determine

Make a job-order cost sheet for Job A.

Explanation

Job-order Cost Sheet:

A document which is maintained for every job and accumulates all the costs incurred to a specific job is known as a job-order cost sheet. It is referred for total direct materials cost, total direct labor cost, applied overhead, and total manufacturing cost.

Job-order cost sheet forJob A:

Accounts TitleAmount($)
Cost of Job A: 
Add: 
Professional time10,200
Mileage255
Photographs120
Total cost$10,575

Table (1)

Working Note:

1. Calculation of professional time:

Professionaltime=Totalhoursworked×Wage

2.

To determine

Explain the reason of exclusion of overhead from the charges. Also explain the method of charging overhead to the clients by SM.

3.

To determine

Prepare a source document and make up the data that will give 510 miles driven in total on the Job A.

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