Concept explainers
Problems
5-31
Peyton also received a phone call from its only other client, Bluestone, Inc., which was very pleased with both the quality of the work and the price charged on its most recent job.
Wharton Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a single direct-cost category (professional labor-hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files show the following:
Steger Enterprises | Bluestone Inc. | |
Professional labor | 3,000 hours | 2,000 hours |
Professional labor costs at Bradley Associates are $160 an hour. Indirect costs are allocated to cases at $100 an hour. Total indirect costs in the most recent period were $500,000.
- 1. Why is it important for Bradley Associates to understand the costs associated with individual jobs?
Required
- 2. Compute the costs of the Steger Enterprises and Bluestone Inc. jobs using Bradley’s simple costing system.
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HORNGRENS COST ACCOUNTING W/ACCESS
- Part 1 Job Order Costing John and Sam went to college together, and both majored in computer science. A few years ago, they formed a computer company called Synergy, Inc. Synergy Inc. is a manufacturer of enterprise management systems. Assume that the company has a division that does custom jobs for large clients. Production costs are accounted for using a job cost system. Suppose that at the beginning of the month, raw materials inventory totaled $8,000, manufacturing supplies amounted to $1,800, and two jobs were in process Job 355 with assigned costs of $18,750 and Job 356 with assigned costs of $2,800, and there were no finished goods inventories. There was no under-applied or over-applied manufacturing overhead on the first day of the month. The following information summarized the month's manufacturing activities: Synergy purchased raw material costing $50,000 on account. Synergy purchased manufacturing supplies costing $9,000. The manager process requisitioned…arrow_forwardPart 1 Job Order Costing John and Sam went to college together, and both majored in computer science. A few years ago, they formed a computer company called Synergy, Inc. Synergy Inc. is a manufacturer of enterprise management systems. Assume that the company has a division that does custom jobs for large clients. Production costs are accounted for using a job cost system. Suppose that at the beginning of the month, raw materials inventory totaled $8,000, manufacturing supplies amounted to $1,800, and two jobs were in process Job 355 with assigned costs of $18,750 and Job 356 with assigned costs of $2,800, and there were no finished goods inventories. There was no under-applied or over-applied manufacturing overhead on the first day of the month. The following information summarized the month’s manufacturing activities: Synergy purchased raw material costing $50,000 on account. Synergy purchased manufacturing supplies costing $9,000. The manager process requisitioned materials for the…arrow_forwardExercise 7-41 (Algo) Job Costing in a Service Organization (LO 7-4) For August, Royal Consulting and Mediation Practice (RCMP) worked 700 hours for Alberta Company and 1,600 hours for Ontario Corporation. RCMP bills clients at the rate of $520 per hour; labor cost for its consulting staff is $320 per hour. The total number of hours worked in August was 2,300, and overhead costs were $52,000. Overhead is applied to clients at $30 per labor-hour. In addition, RCMP had $300,000 in marketing and administrative costs. All transactions are on account. All services were billed. Transaction Description (a) Record Labor cost (b) Record Applied Service Overhead (c) Record Cost of services billed (d) Record Actual Service Overhead Required: a. Show labor and overhead cost flows through T-accounts. b. Prepare an income statement for the company for August.arrow_forward
- Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What do you think is a possible solution?arrow_forwardFactory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What did the engineer mean about the large overhead rate being a disadvantage when plating bids and seeking new business?arrow_forwardQuestion 4 Part II During the month of April, Advent Company had two jobs. The manufacturing costs incurred were:Raw materials purchased $ 48,000Factory Labour Incurred $ 80,000Manufacturing Overheads Incurred $ 64,800Costs assignment to the jobs were as follows:Direct Materials: Job # Black $27,000Job # White $21,000Direct Labour: Job # Black $52,000Job # White $28,000The Advent Company took two jobs in June Job: Black and Job: White. The application rate forManufacturing Overheads has been pre-determined as 80% of Direct Labour Costs. Required:a. Compute the total costs allocated to each Job. b. Compute the amount of over/under allocated overheads.arrow_forward
- Exercise 7-41 (Algo) Job Costing in a Service Organization (LO 7-4) For August, Royal Consulting and Mediation Practice (RCMP) worked 750 hours for Alberta Company and 1,850 hours for Ontario Corporation. RCMP bills clients at the rate of $580 per hour; labor cost for its consulting staff is $380 per hour. The total number of hours worked in August was 2,600, and overhead costs were $58,000. Overhead is applied to clients at $28 per labor-hour. In addition, RCMP had $330,000 in marketing and administrative costs. All transactions are on account. All services were billed. Transaction Description (a) Record Labor cost (b) Record Applied Service Overhead (c) Record Cost of services billed (d) Record Actual Service Overhead Required: a. Show labor and overhead cost flows through T-accounts. b. Prepare an income statement for the company for August. Required A Show labor and overhead cost flows through T-accounts. Wages…arrow_forwardLO.4 (Cost accumulation; assigning costs to jobs) Gigi LeBlanc is an advertis-ing consultant who tracks costs for her jobs using a job order costing system. During September, LeBlanc and her staff worked on and completed jobs for the following companies:Reliant CompanyDumas Manufacturing Omaha Inc.Direct material cost $7,800 $14,200 $19,800Direct labor cost $5,580 $18,000 $28,350Number of promotions designed 3 10 8Direct material can be traced to each job because these costs are typically associated with specifi c advertising campaigns. Based on historical data, LeBlanc has calculated an overhead charge of $58 per direct labor hour. Th e normal labor cost per hour is $45.a. Determine the total cost for each of the advertising accounts for the month.b. Determine the cost per promotion developed for each client. (Round to the nearest dollar.)c. LeBlanc charges $8,600 per promotion. What was her net income for the month, assuming actual overhead for the month was $50,000? Adjust for…arrow_forwardExercise 7-22 (Algo) Assigning Costs to Jobs (LO 7-1, 2) The following transactions occurred in April at Steve’s Cabinets, a custom cabinet firm. Purchased $18,500 of materials on account. Issued $1,050 of supplies from the materials inventory. Purchased $11,700 of materials on account. Paid for the materials purchased in transaction (1) using cash. Issued $14,100 in direct materials to the production department. Incurred direct labor costs of $22,500, which were credited to Wages Payable. Paid $21,700 cash for utilities, power, equipment maintenance, and other miscellaneous items for the manufacturing plant. Applied overhead on the basis of 120 percent of $22,500 direct labor costs. Recognized depreciation on manufacturing property, plant, and equipment of $10,500. The following balances appeared in the accounts of Steve’s Cabinets for April. Beginning Ending Materials Inventory $ 30,390 ? Work-in-Process Inventory 7,100 ? Finished…arrow_forward
- a. REQUIREMENTS #2 and #3 ONLY of Exercise 4-49 (picture 2). Assume Direct Labor workers make $20 per hour, so with the given labor cost per job, you can determine the number of hours worked. CHANGE the Exercise to say that Overhead is applied at the rate of $32 per direct labor hour. ALSO CHANGE to say that Job #39 and Job #40 were completed and sold, while Job #41 and Job #42 are complete but not sold, and Job #43 is not completed yet. b. Use the information in Problem 4-53 (picture 2) to prepare journal entries for the month of July with the following CHANGES. First, assume that the company uses a plantwide overhead rate based on direct labor dollars. Also assume that estimated information for the year includes Direct labor dollars of $1,642,000. Finally, assume that the company sells its jobs at a selling price equal to (cost + 25% of cost markup).arrow_forwardProblem 15-3A (Algo) Computing and recording job costs; preparing income statement and balance sheet LO P1, P2, P3, P4 Skip to question [The following information applies to the questions displayed below.] Bergo Bay's accounting system generated the following account balances on December 31. The company’s manager knows something is wrong with this list of balances because it does not show any balance for Work in Process Inventory, and the accrued factory payroll (Factory Wages Payable) has not been recorded. Debit Credit Cash $ 77,000 Accounts receivable 46,000 Raw materials inventory 28,000 Work in process inventory 0 Finished goods inventory 9,000 Prepaid rent 3,000 Accounts payable $ 11,500 Notes payable 14,500 Common stock 30,000 Retained earnings (prior year) 92,000 Sales 189,000 Cost of goods sold 106,000 Factory overhead 28,000 General and administrative expenses 40,000 Totals $ 337,000 $ 337,000 These six…arrow_forwardProblem 15-3A (Algo) Computing and recording job costs; preparing income statement and balance sheet LO P1, P2, P3, P4 Skip to question [The following information applies to the questions displayed below.] Bergo Bay's accounting system generated the following account balances on December 31. The company’s manager knows something is wrong with this list of balances because it does not show any balance for Work in Process Inventory, and the accrued factory payroll (Factory Wages Payable) has not been recorded. Debit Credit Cash $ 77,000 Accounts receivable 46,000 Raw materials inventory 28,000 Work in process inventory 0 Finished goods inventory 9,000 Prepaid rent 3,000 Accounts payable $ 11,500 Notes payable 14,500 Common stock 30,000 Retained earnings (prior year) 92,000 Sales 189,000 Cost of goods sold 106,000 Factory overhead 28,000 General and administrative expenses 40,000 Totals $ 337,000 $ 337,000 These six…arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning