Case Scenario:
Printers, Inc. Produces annual reports and marketing materials for large companies. There are three categories of costs in its normal job-costing system: Direct materials, direct labor, and overhead (both variable and fixed), allocated on the basis of direct labor costs. Jill Liu, the controller, is concerned that an increasing number of clients are waiting until the last minute to send in their final orders, causing congestion and an increase in the variable manufacturing overhead rate because of higher overtime and facility and machine maintenance. This spike is during the "crazy" months of January, February, and March, when many companies are rushing to get out their annual reports and marketing materials. Liu obtains the following budgeted data for 2008:
Jan.-March April-June July-Sept. Oct.-Dec. Total
Direct materials $900,000 $620,000 $595,000 $605,000 $2,720,000
Direct labor costs $400,000 $280,000 $250,000 $270,000 $1,200,000
Variable overhead costs as a 90% 60% 60% 60%
percentage of direct labor costs
Fixed overhead costs $300,000 $300,000 $300,000 $300,000 $1,200,000
Here is where I need help.
1. Consider Job 332, an order for 100,000 sales catalogs for the local mall. Actual direct material costs for this job are $10,000 and actual labor costs are $6,000. Calculate the cost of Job 332 (a) if it is competed in January-March 2008 and if the budgeted overhead rate for that quarter is used to allocate overhead cost, (b) if it is done in July-September 2008 and if the budgeted overhead rate for that quarter is used to allocate overhead costs, and (c) if the average budgeted overhead rate for the year 2008 is used to allocate overhead costs.
2. To cost each job, Printers, Inc. currently uses the budgeted variable overhead rate for the quarter in which the job is completed and a budgeted fixed overhead rate based on budgeted annual fixed overhead costs and budgeted annual direct labor costs. Calculate the cost of Job 332 using this method if it is done (a) January - March 2008 and (b) July-September 2008.