Concept explainers
Issues with cost of job (Learning Objectives 2, 3, & 4)
Custom Cookies produces gourmet cookies with company logos for special promotions. The cookies are customized with the customer’s choice of shape, color, flavor, and decorations. Custom Cookies uses a
Direct materials (flour, sugar, butter, eggs, baking soda, vanilla) | $1.50 |
Direct labor (shape and decorate cookies) | 0.50 |
Manufacturing overhead | 0.90 |
Total |
$2.90 |
In September, Chesrown Motor Group ordered 400 dozen cookies to present to its clients as holiday gifts. Delivery of the cookies to Chesrown would occur in early December. At the time of Chesrown Motor Group’s order, the selling price per dozen cookies was $7.25.
Chesrown Motor Group placed an order for an additional 100 dozen cookies in November, to be delivered with the original order of 400 dozen. However, since that original order, two events occurred that increased the cost of the cookies. First, the price of sugar skyrocketed due to bad weather in Brazil and India, two of the largest sugar suppliers in the world. Second, a new local cookie bakery is about to open in time for the holiday season and is aggressively trying to hire the cookie decorators from Custom Cookies. In response, Custom Cookies increased the hourly rate of the employees who decorate the cookies to keep those workers from going to work for the competition. All other costs at Custom Cookies have remained the same.
Because of these two events, Custom Cookies recalculated the cost of a dozen cookies as follows:
Direct materials (flour, sugar, butter, eggs, baking soda, vanilla) | $1.60 |
Direct labor (shape and decorate cookies) | 0.65 |
Manufacturing overhead | 1.17 |
Total manufacturing cost per dozen cookies | $3.42 |
Requirements
- A. Do you agree with the cost analysis for the second order? Explain your answer.
- B. Should the two orders be accounted for as one job or as two jobs in Custom Cookies’ system?
- C. What sales price per box should Custom Cookies set for the second order? Explain why you have selected this per-box price. What are the advantages and disadvantages of this price?
Want to see the full answer?
Check out a sample textbook solutionChapter 3 Solutions
Managerial Accounting (5th Edition)
- Ventana Window and Wall Treatments Company provides draperies, shades, and various window treatments. Ventana works with the customer to design the appropriate window treatment, places the order, and installs the finished product. Direct materials and direct labor costs are easy to trace to the jobs. Ventanas income statement for last year is as follows: Ventana wants to find a markup on cost of goods sold that will allow them to earn about the same amount of profit on each job as was earned last year. Required: 1. What is the markup on cost of goods sold (COGS) that will maintain the same profit as last year? (Round the percentage to two significant digits.) 2. A customer orders draperies and shades for a remodeling job. The job will have the following costs: What is the price that Ventana will quote given the markup percentage calculated in Requirement 1? (Round the price to the nearest dollar.) 3. What if Ventana wants to calculate a markup on direct materials cost, since it is the largest cost of doing business? What is the markup on direct materials cost that will maintain the same profit as last year? (Round the percentage to two significant digits.) What is the bid price Ventana will use for the job given in Requirement 2 if the markup percentage is calculated on the basis of direct materials cost? (Round to the nearest dollar.)arrow_forwardThermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Order processing Custom design processing Customer service Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over the last 12 months: Number of gliders Number of orders Activity Rate 18 per direct labor-hour $194 per order $263 per custom design $426 per customer Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider The company's direct labor rate is $18 per hour. Customer margin Standard Model 12 1 0 30.50 $ 1,825 $ 458 Custom Design 3 ww 3 O 3 33.00 $ 2,480 $ 576 Required: Using the company's activity-based…arrow_forward1.Sophie. Company prints custom training material forcorporations. The business was started January 1, 2014. The company uses a normal-costing system. It hastwo direct cost pools, materials and labor, and one indirect cost pool, overhead. Overhead is charged toprinting jobs on the basis of Machine hours. The following information is available for 2014. Budgeted direct labor costs . Budgeted overhead costs Budgeted direct labor Hour Budgeted machine Hours Costs of actual material used . $225,000 ..$315,000 31,500 .63,000 „$148,500 „$213,500 „$302,000 ...... Actual direct labor costs (29,500 Hrs).... Actual overhead costs Actual machine Hours 30000 There were two jobs in process on December 31, 2014: Job 11 and Job 12. Costs added to each job as of December 31 are as follows: Direct materials Direct labor MOH Applied Job 11 $4,870 $5,910 $5,100 $6,800 $7,030 $9,290 Job 12 Boris.Company has no finished goods inventories because all printing jobs are transferred to cost of goodssold when…arrow_forward
- Thermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Order processing Custom design processing Customer service Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over the last 12 months: Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Activity Rate $ 22 per direct labor-hour $ 188 per order $ 262 per custom design $ 422 per customer Selling price per glider Direct materials cost per glider The company's direct labor rate is $22 per hour. Customer margin Standard Model 13 1 0 27.50 $ 1,950 $ 472 Custom Design ~~~ 2 2 2 33.00 $ 2,430 $ 582 Required: Using the company's activity-based…arrow_forwardThermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Order processing Custom design processing Customer service Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over the last 12 months: Number of gliders Number of orders Number of custom designs Activity Rate $20 per direct labor-hour $186 per order. $257 per custom design $ 428 per customer Standard Model Direct labor-hours per glider Selling price per glider Direct materials cost per glider The company's direct labor rate is $20 per hour. Customer margin 12 1 0 27.50 $ 1,825 $ 458 Custom Design 3 3 3 32.00 $ 2,440 $ 566 Required: Using the company's activity-based…arrow_forwardThermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Order processing Custom design processing Customer service Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over the last 12 months: Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider Activity Rate $18 per direct labor-hour $194 per order $255 per custom design $432 per customer The company's direct labor rate is $20 per hour. Customer margin Standard Model 16 2 0 30.50 $ 1,800 $ 450 Custom Design 3 3 3 31.00 $ 2,490 $ 578 Required: Using the company's activity-based costing…arrow_forward
- Thermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Order processing Custom design processing Customer service Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over the last 12 months: Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider Activity Rate $ 22 per direct labor-hour $ 198 per order 262 per custom design 424 per customer The company's direct labor rate is $22 per hour. Customer margin Standard Model 875 456 Custom Des 32-28 $7589 Required: Using the company's activity-based costing system, compute the customer margin…arrow_forwardMarvin's Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity- based costing methods and identified four activities. Data on these activities follow. Activity Processing order Loading truck Delivering merchandise Processing invoice Total overhead Order value Number of orders Number of items Number of invoices Cost Driver Number of orders Number of items Number of orders Number of invoices Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow. City Diner Le Chien Chaud $75,000 $90,000 110 1,500 150 Required A Cost Driver Volume 52 600 12 Cost $ 75,000 150,000 90,000 72,000 $387,000 Required B City Diner Le Chien Chaud Driver Volume 5,000 orders 100,000 items Required: a. What would the delivery charge for each…arrow_forwardSample Exercise opens EA2. Rene is working with the operations manager to determine what the standard labor cost is for a spice chest. He has watched the process from start to finish and taken detailed notes on what each employee does. The first employee selects and mills the wood, so it is smooth on all four sides. This takes the employee 1 hour for each chest. The next employee takes the wood and cuts it to the proper size. This takes 30 minutes. The next employee assembles and sands the chest. Assembly takes 2 hours. The chest then goes to the finishing department. It takes 1.5 hours to finish the chest. All employees are cross-trained so they are all paid the same amount per hour, $17.50. A. What are the standard hours per chest? B. What is the standard cost per chest for labor?arrow_forward
- Match each of the following cost items with the value chain business function where you would expect the cost to be incurred: Cost Item 1. Labor time to repair products under warranty 2. Radio commercials 3. Labor costs of delivering customer orders 4. Testing of competitor's product 5. Direct manufacturing labor costs 6. Development of order tracking system for online sales 7. Design cost of new product brochures 8. Hours spent designing childproof bottles 9. Training costs for representatives to staff the customer call center 10. Installation of robotics equipment in manufacturing plant Business Functionarrow_forwardCut It Up, Inc., is a manufacturer of wooden cutting boards that are sold through a chain of kitchen stores. For years, the company has allocated overhead based on total machine hours. A recent assessment of overhead costs has shown that these costs are now in excess of 40 percent of the company’s total costs. As an attempt to better control overhead, Cut It Up is adopting an activity-based costing system. Each cutting board goes through the following processes:a. Cutting—Boards are selected from inventory and are cut to the required width and length. Imperfections in boards (such as knots or cracks) are identified and removed.b. Assembly—Cut wooden pieces are laid out on clamps, a layer of glue is applied to each piece, and the glued pieces are clamped together until the glue sets.c. Shaping—Once the glue has set, the boards are sent to the shaping process, where they are cut into unique shapes.d. Sanding—After being shaped, the cutting boards must be sanded smooth.e. Finishing—Sanded…arrow_forwardThermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Coat Pool Supporting direct labor Order processing Custom design processing Customer service Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: Number of gliders Number of orders Number of custom designs Direct labor-houra per glider Activity Rate $ 20 per direct labor-hour $ 198 per order $267 per custom design $ 420 per customer Selling price per glider Direct materials cost per glider The company's direct labor rate is $20 per hour. Customer margin Standard Model 14 2 0 27.50 $1,875 $ 472 Custom Design 2 2 2 34.00 $ 2,490 $586 Required: Using the company's…arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning