2024 – 4 16 Job costing process costing In each of the following situations determine whether job costing or

 

 

4-16Job costing, process costing.In each of the following situations, determine whether job costing or process costing would be more appropriate.

a.A CPA firm

b.An oil refinery

c.A custom furniture manufacturer

d.A tire manufacturer

e.A textbook publisher

f.A pharmaceutical company

g.An advertising agency

h.An architecture firm

i.A flour mill

j.A paint manufacturer

k.A nursing home

l.A landscaping company

m.A cola-drink-concentrate producer

n.A movie studio

o.A law firm

p.A commercial aircraft manufacturer

q.A management consulting firm

r.A plumbing contractor

s.A catering service

t.A paper mill

u.An auto repair shop

4-18Job costing, normal and actual costing.Anderson Construction assembles residential houses.

It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly support costs.

In December 2013, Anderson budgets 2014 assembly-support costs to be $8,000,000 and 2014 direct labor hours to be 160,000.

At the end of 2014, Anderson is comparing the costs of several jobs that were started and completed in 2014.

Laguna Model Mission Model

Construction period Feb–June 2014 May–Oct 2014

Direct material costs $106,650 $127,970

Direct labor costs $36,276 $41,750

Direct labor-hours 920 1,040

Direct materials and direct labor are paid for on a contract basis. The costs of each are known when direct materials are used or when direct labor-hours are worked. The 2014 actual assembly-support costs were $7,614,000, and the actual direct labor-hours were 162,000.

1.Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?

2.What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and (b) actual costing?

3.Why might Anderson Construction prefer normal costing over actual costing?

 

 

 

 

 

 

 

4-32Service industry, job costing, law firm.Kidman & Associates is a law firm specializing in labor relations and employee-related work. It employs 30 professionals (5 partners and 25 associates) who work directly with its clients. The average budgeted total compensation per professional for 2014 is $97,500. Each professional is budgeted to have 1,500 billable hours to clients in 2014. All professionals work for clients to their maximum 1,500 billable hours available. All professional labor costs are included in a single direct-cost category and are traced to jobs on a per-hour basis. All costs of Kidman & Associates other than professional labor costs are included in a single indirect-cost pool (legal support) and are allocated to jobs using professional labor-hours as the allocation base. The budgeted level of indirect costs in 2014 is $2,475,000.

1.Prepare an overview diagram of Kidman’s job-costing system.

2.Compute the 2014 budgeted direct-cost rate per hour of professional labor.

3.Compute the 2014 budgeted indirect-cost rate per hour of professional labor.

4.Kidman & Associates is considering bidding on two jobs:

a.Litigation work for Richardson, Inc., which requires 120 budgeted hours of professional labor

b.Labor contract work for Punch, Inc., which requires 160 budgeted hours of professional labor

Prepare a cost estimate for each job.

4-34Proration of overhead.(Z. Iqbal, adapted) The Zaf Radiator Company uses a normal-costing system with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The following data are for 2014:

Budgeted manufacturing overhead costs $4,800,000

Overhead allocation base Machine-hours

Budgeted machine-hours 80,000

Manufacturing overhead costs incurred $4,900,000

Actual machine-hours 75,000

Machine-hours data and the ending balances (before proration of under- or over allocated overhead) are as follows:

Actual Machine-Hours 2014 End-of-Year Balance

Cost of Goods Sold 60,000 $8,000,000

Finished Goods Control 11,000 1,250,000

Work-in-Process Control 4,000 750,000

1.Compute the budgeted manufacturing overhead rate for 2014.

2.Compute the under- or over allocated manufacturing overhead of Zaf Radiator in 2014. Dispose of this amount using the following:

a.Write off to Cost of Goods Sold

b.Proration based on ending balances (before proration) in Work-in-Process Control, Finished Goods

Control, and Cost of Goods Sold

c.Proration based on the overhead allocated in 2014 (before proration) in the ending balances of

Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold

3.Which method do you prefer in requirement 2? Explain.