Professional Documents
Culture Documents
During April, Mrs Lucky, a good friend of owner Jane Reynolds, ordered three sets of
wedding announcements to be delivered May 10, June 10 and July 10 respectively. Reynolds
scheduled production for each order on May 7, June 7 and July 7, respectively. The orders
were assigned job numbers 115, 116 and 117, respectively.
Reynolds assured Mrs Lucky that she would attend each of her daughters’ weddings.
Out of sympathy and friendship, she also offered a lower proce. Instead of cost plus 50%,
she gave her a special price of cost plus 25%. Additionally, she agreed to wait until the final
wedding to bill for the three jobs.
On August 15, Reynolds asked her accountant to bring her the completed JOC sheets
for Jobs 115, 116 and 117. She also gave instructions to lower the price as had been agreed
upon. The cost sheets revealed the following information:
Reynolds could not understand why the overhead costs assigned to Jobs 116 and 117
were so much higher than those for job 115. She asked for an overhead cost summary sheet
for the months of May, June and July, which showed that actual overhead costs were $20,000
each month. She also discovered that direct labor hours worked on all jobs were 500 hours in
May and 250 hours each in June and July.
REQUIRED:
1. Identify what is happening with regard to Jobs 115,116 and 117 and explain how Mrs
Lucky will feel when she receives the bill for the three sets of wedding
announcements?
2. Analyse how the overhead costs were assigned to each job.
3. Assume that Reynolds’s average activity is 500 hours per month and that the
company usually experiences overhead costs of $240,000 each year. Can you
recommend a better way to assign overhead costs to jobs? Recompute the cost of each
job and its price given your method of overhead cost assignment.
4. Decide which method is best in your opinion?
5. Explain why you think so?
QUESTION 2
The Pisano Company uses a job-costing system at its Dover, Delaware, plant. The plant has a
machining department and a finishing department. Pisano uses normal costing with two
direct-cost categories (direct material and direct manufacturing labor) and two manufacturing
overhead cost pools (the machining department with machine hours as the allocation base and
the finishing department with direct manufacturing labor costs as the allocation base). The
2014 budget for the plant is as follows:
Compute the under-or overallocated manufacturing overhead for each department and
for the Dover plant as a whole.
5. Why might Pisano use two different manufacturing overhead cost pools in its job-
costing system?
QUESTION 3
Koko Lili Enterprise (KLE) is a company that produces custom-made furniture using exotic
woods such as cedar, teak and agarwood. Each furniture is unique and is made based on
customer requirement. On 1st January 2018, three jobs were in process with the following
costs:
During the month of January, two more jobs were started, C111 and T146. Material and
labour costs incurred by each job in January are as follows:
Job C110 Job T145 Job A086 Job C111 Job T146
RM RM RM RM RM
Direct Materials 6,000 5,500 7,700 23,100 1,900
Direct Labour 3,000 2,000 2,400 21,000 2,400
Job A086 and C111 were completed and sold in January 2018.
REQUIRED:
1. If overhead is applied on the basis of direct labor cost, what is the predetermined
overhead rate?
2. Calculate total cost for each of the five jobs in process for January.
3. If KLE prices its jobs at cost plus 30%, calculate the selling price for Job A086
and C111.
4. Prepare KLE’s income statement for the month of January, assuming a sum of
RM26,350 selling and administrative expenses were incurred.