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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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Calculate Job Cost and Use It to Calculate Price

Suppose that back in the 1970s, Steve was asked to build speakers for two friends. The first friend, Jan, needed a speaker for her band. The second friend, Ed, needed a speaker built into the back of his hatchback automobile. Steve figured the following costs for each:

Chapter 4, Problem 58P, Calculate Job Cost and Use It to Calculate Price Suppose that back in the 1970s, Steve was asked to

Steve knew that Jan’s job would be easier, since he had experience in building the type of speaker she needed. Her job would not require any special equipment or specialized fitting. Ed’s job, on the other hand, required specialized design and precise fitting. Steve thought he might need to build a mock-up of the speaker first, to fit it into the space. In addition, he might have to add to his tool collection to complete the job. Normally, Steve figured a wage rate of $6 per hour and charged 20% of labor and materials as an overhead rate.

Required:

  1. 1. Prepare job-order cost sheets for the two jobs, showing total cost.
  2. 2. CONCEPTUAL CONNECTION Which cost do you think is more likely to be accurate? How might Steve build in some of the uncertainty of Ed’s job into a budgeted cost?

1.

To determine

Make job-order cost sheets for J’s Job and E’s Job.

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 for J’s Job and E’s Job:

J's Job($)E's Job($)
Direct materials5075
Direct labor60120
Overhead applied12232
Total manufacturing cost132227

Table (1)

Working Note:

1. Overhead applied for J’s Job:

Overheadapplied=Directlaborcost×Overheadrate=($50+(10×$6))×0

2.

To determine

Identify the cost that could be accurate. Also explain the method by which Person S build in some of the uncertainty of E’s job into a budgeted cost.

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