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Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
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Textbook Question
Chapter 3, Problem 3.47AP
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Sierra Design is an interior design firm. The firm uses a job cost system in which each client is a different “job.” Sierra Design traces direct labor, licensing costs, and travel costs directly to each job (client). It allocates indirect costs to jobs based on a predetermined indirect cost allocation rate computed as a percentage of direct labor costs.
At the beginning of the current year, managing partner Laurie Walker prepared the following budget:
Direct labor hours (professional) | 10,000 hours |
Direct labor costs (professional) | $ 1,100,000 |
Support staff salaries | $ 140,000 |
Computer lease payments | $ 46,000 |
Office Supplies | $ 26,000 |
Office rent | $ 63,000 |
Later that same year in November, Sierra Design served several clients. Records for two clients appear here:
Delightful Dining | Dine now.com | |
Direct labor hours | 710 hours | 40 hours |
Software licensing costs | $ 2,300 | $300 |
Travel costs | $ 10,000 | $0 |
Requirements
- 1. Compute Sierra Design’s predetermined indirect cost allocation rate for the current year.
- 2. Compute the total cost of each of the two jobs listed.
- 3. If Sierra Design wants to earn profits equal to 20% of sales revenue, how much (what total fee) should the company charge each of these two clients?
- 4. Why does Sierra Design assign costs to jobs?
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Students have asked these similar questions
This week we are studying job order costing. In order to better understand what job
order costing is, you will also need to have a basic understanding of process costing.
Please briefly explain these two types of costing systems and provide us with an
example of a real-world company that would use job order costing and one that
would use process costing.
Requirement 2:
Please distinguish between prime costs and conversion costs and provide us with an
example of each.
Requirement 3:
Please explain the difference between a prime cost and a product cost and provide us
with an example of each.
Using job order costing in a service company
Bluebird Design, Inc. is a Web site design and consulting firm. The firm uses a job order costing system in which each client is a different job. Bluebird Design assigns direct labor, licensing costs, and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined overhead allocation rate, computed as a percentage of direct labor costs.
At the beginning of 2018, managing partner Sally Simone prepared the following budget estimates:
In November 2018, Bluebird Design served several clients. Records for two clients appear here:
Requirements
Compute Bluebird Designs direct labor rate and its predetermined overhead allocation rate for 2018.
Compute the total cost of each job.
If Simone wants to earn profits equal to 50% of service revenue, what fee should she charge each of these two clients?
Why does Bluebird Design assign costs to jobs?
E18-17 Comparing job order costing versus process costing
Learning Objective 1
For each of the following products or services, indicate if the cost would most
likely be determined using a job order costing system or a process costing
system.
a. Soft drinks
b. Automobile repairs
c. Customized furniture
d. Aluminum foil
e. Lawn chairs
f. Chocolate candy bars
g. Hospital surgery
h. Pencils
Chapter 3 Solutions
Managerial Accounting (5th Edition)
Ch. 3 - (Learning Objective 1) For which of the following...Ch. 3 - (Learning Objective 2) Which of the following...Ch. 3 - (Learning Objective 2) Which of the following...Ch. 3 - (Learning Objective 3) The amount of manufacturing...Ch. 3 - (Learning Objective 4) Which of the following is...Ch. 3 - (Learning Objective 5) Which of the following is...Ch. 3 - (Learning Objective 5) Assuming the amount of...Ch. 3 - Prob. 8QCCh. 3 - Prob. 9QCCh. 3 - Prob. 10QC
Ch. 3 - Identify product costs, period costs, and product...Ch. 3 - Decide on product costing system (Learning...Ch. 3 - Determine the flow of costs between inventory...Ch. 3 - Understanding key document terms in a job cost...Ch. 3 - Compute a professional billing rate (Learning...Ch. 3 - Prob. 3.6SECh. 3 - Continuation of S3-6: compute total allocated...Ch. 3 - Continuation of S3-7: determine over- or under...Ch. 3 - Prob. 3.9SECh. 3 - Calculate job cost and billing at appliance repair...Ch. 3 - Calculating overallocated or underallocated...Ch. 3 - Prob. 3.12SECh. 3 - Record manufacturing labor costs (Learning...Ch. 3 - Prob. 3.14SECh. 3 - Prob. 3.15SECh. 3 - Understanding key terms (Learning Objectives 1, 2,...Ch. 3 - Identify type of costing system (Learning...Ch. 3 - Prob. 3.18AECh. 3 - Determine the cost of a job and use it for pricing...Ch. 3 - Compute a predetermined overhead rate and...Ch. 3 - Prob. 3.21AECh. 3 - Prob. 3.22AECh. 3 - Determine the cost of a job (Learning Objectives...Ch. 3 - Compare bid prices under two different allocation...Ch. 3 - Analyze manufacturing overhead (Learning...Ch. 3 - Record manufacturing overhead (Learning Objectives...Ch. 3 - Record journal entries (Learning Objectives 2, 3,...Ch. 3 - Analyze T-accounts (Learning Objectives 2, 3, 5, ...Ch. 3 - Job cost and bid price at a consulting firm...Ch. 3 - Record journal entries (Learning Objectives 2, 3,...Ch. 3 - Identify type of costing system (Learning...Ch. 3 - Understand the flow of costs in a job cost shop...Ch. 3 - Prob. 3.33BECh. 3 - Prob. 3.34BECh. 3 - Prob. 3.35BECh. 3 - Sustainability and job costing (Learning...Ch. 3 - Determine the cost of a job (Learning Objectives...Ch. 3 - Compare bid prices under two different allocation...Ch. 3 - Analyze manufacturing overhead (Learning...Ch. 3 - Record manufacturing overhead (Learning Objectives...Ch. 3 - Record journal entries (Learning Objectives 2, 3,...Ch. 3 - Analyze T-accounts (Learning Objectives 2, 3, 5, ...Ch. 3 - Prob. 3.43BECh. 3 - Record journal entries (Learning Objectives 2, 3,...Ch. 3 - Analyze Manufacturing Overhead (Learning...Ch. 3 - Use job costing at an advertising agency (Learning...Ch. 3 - Use job costing at a consulting firm (Learning...Ch. 3 - Prepare job cost record (Learning Objectives 2, 3,...Ch. 3 - Determine and record job costs (Learning...Ch. 3 - Determine flow of costs through accounts (Learning...Ch. 3 - Analyze Manufacturing Overhead (Learning...Ch. 3 - Use job costing at an advertising agency (Learning...Ch. 3 - Use job costing at a consulting firm (Learning...Ch. 3 - Prepare job cost record (Learning Objectives 2, 3,...Ch. 3 - Determine and record job costs (Learning...Ch. 3 - Determine flow of costs through accounts (Learning...Ch. 3 - Job costing or process costing for wedding...Ch. 3 - Discussion Questions 1. Why would it be...Ch. 3 - Unwrapped or How Its Made Go to www.YouTube.com...Ch. 3 - Ethics involved with choice of cost driver...Ch. 3 - Prob. 3.61ACTCh. 3 - Issues with cost of job (Learning Objectives 2, 3,...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- create a company and a product and then a unique JOB COST RECORD. do this by Createing a brief explanation of your company and product. and Create a JOB COST RECORD for one job in your company including Direct Materials, Direct Labor and Manufacturing Overhead and correct total costs.arrow_forwardWhen are companies likely to use a job costing system or process costing system? Describe the specific characteristics of each system and provide at least 2 examples from companies in your community for each system (at least 4 companies should be described). Please include cited references used.arrow_forwardJob costing; variation on actual, normal, and variation from normal costing. Creative Solutions designs Web pages for clients in the education sector. The company’s job-costing system has a single direct cost category (Web-designing labor) and a single indirect cost pool composed of all overhead costs. Overhead costs are allocated to individual jobs based on direct labor-hours. The company employs six Web designers. Budgeted and actual information regarding Creative Solutions follows:arrow_forward
- In each of the following situations, determine whether job costing or process costing would be more appropriate.a.A CPA firm▼ job costingprocess costingb.An oil refinery▼ job costingprocess costingc.A custom furniture manufacturer▼ job costingprocess costingd.A tire manufacturer▼ job costingprocess costinge.A textbook publisher▼ job costingprocess costingf.A home builder▼ job costingprocess costingg.An advertising agency▼ job costingprocess costingarrow_forwardAPPLY THE CONCEPTS: Determine the costs for Work in Process and Finished Goods Job 1 Job 2 Job 3 Job 4 Materials $550 $400 $315 $411 Labor 818 525 475 623 Overhead 325 258 126 164 $ $ Total Complete the table and determine the following account Work in Process $ Finished Goods $arrow_forwardsolve questions d,e,f from the question given in the image. Bella Incorporated uses a job-order costing system and a predetermined overhead rate based on machine hours. Remaining question is in the images provided.arrow_forward
- What type of cost accounting system would be most appropriate to be used by a graduation invitation printing company? Group of answer choices Not enough information to determine Preplacement cost system Process cost system Job order cost systemarrow_forwardService industry, job costing, two direct- and two indirect-cost categories, law rm (continuation of 4-37). Kidman has just completed a review of its job-costing system. This review included a detailed analysis of how past jobs used the rm’s resources and interviews with personnel about what factors drive the level of indirect costs. Management concluded thata system with two direct-cost categories (professional partner labor and professional associate labor) and two indirectcost categories (general support and secretarial support) would yield more accurate job costs. Budgeted information for 2017 related to the two direct-cost categories is as follows:arrow_forwardQ4. Referring to the concept of job costing in the manufacturing sector, identify how you will record the following journal entries: a)When raw materials are received. b)When raw materials are sent to the factory floor. c)When labor costs are incurred. d)When a job is completed. e)When a job is shipped to a customer. Note: You must assume significant values for each transaction of your own and prepare the journal entries for each case.arrow_forward
- A job order cost accounting system accumulates and records product costs by jobs. The resulting total and unit product costs can be used to do all of the following except a.compare actual costs to expected costs b.make cost comparisons across similar jobs c.analyze cost trends over time d.create customer profiles for the sales staffarrow_forwardMatch each business that follows with the job cost system it would most likely utilize. Clear All Tax consultant Paint manufacturer Nail manufacturer Process cost system Job order cost systemarrow_forwardPlease read Chapter 2 and then answer the following question Describe how a job order cost system can be used for professional service businesses.arrow_forward
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