nn, who has one full-time employee working for him. Ken has worked in this industry for many years and has just started the company. Currently, for customer pricing inquiries, Ken provides a quote based on his best estimate and years of experience in the business and applies a 40% markup on cost. Ken’s son Owen has returned home for the summer after completing his first semester of an accounting program. Owen described to Ken the benefits of a job-order costing system to track costs and as a basis for quoting sales prices to prospective customers. Ken believes he could use this cost accounting system in his new business and sets aside a few hours to collect and generate the following estimated data: Monthly Estimates:
The Ferndale Furniture Company produces custom furniture for walk-in customers. Products include coffee tables, shelving units, mirrors, and hutches and can be constructed with either pine or oak. Custom kitchen cabinetry and installation will also be considered during the slower winter season. The company is owned and operated by Ken McMann, who has one full-time employee working for him. Ken has worked in this industry for many years and has just started the company. Currently, for customer pricing inquiries, Ken provides a quote based on his best estimate and years of experience in the business and applies a 40% markup on cost.
Ken’s son Owen has returned home for the summer after completing his first semester of an accounting program. Owen described to Ken the benefits of a job-order costing system to track costs and as a basis for quoting sales prices to prospective customers. Ken believes he could use this cost accounting system in his new business and sets aside a few hours to collect and generate the following estimated data:
Monthly Estimates:
|
Direct materials – kiln dried pine |
$28/board foot |
|
Direct materials – kiln dried oak |
$35/board foot |
|
Direct labour Other materials wood shipping cost |
$17.50/hour 340 240 |
|
Direct labour hours |
60 |
|
|
$1,250 |
|
Utilities |
$490 |
|
Rent – production space |
$1,550 |
|
Rent – sales and administrative space |
$1,210 |
|
Salaries – sales and administrative |
$1,440 |
Ken has received customer enquiries for price quotes: one is for 2 pine shelving units and the second is for 3 kitchen hutch made with oak. Ken has generated the following estimates:
|
Job 1 – Shelving Unit |
Job 2 – Kitchen Hutch |
|
|
Direct materials |
20 board feet – Pine |
40 board feet – Oak |
|
Direct labour hours |
25 |
35 |
At the end of the month, Ken collected the following actual data after completing Jobs 1 and 2.
End-of-month actual data:
|
Depreciation – production equipment |
$1,235 |
|
Utilities |
1,475 |
|
Rent – production space |
580 |
|
Rent – sales and administrative space other material wood shipping cost |
1,410 230 256 |
|
Salaries – sales and administrative |
1,460 |
|
Raw materials inventory – beginning |
400 |
|
Raw materials inventory – ending |
120 |
Question:
- Assume it is the beginning of the month, using the estimates and a job-order costing system, what price would you recommend Ken quote for each of the above two jobs to ensure profitability in the long term?
- Assume it is the end of the month, determine the amount of under- or over-applied overhead and recommend to Ken how this amount should be accounted for.
- Prepare a schedule of cost of goods manufactured for the month - these were the only two jobs started and sold (zero beginning and ending work-in-process inventory). Assume that actual materials used and the labour rate/hours are the same as estimated.
Please example how the calculation
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