Question:
Asheville Furniture Company refinishes and reupholsters furniture. Asheville uses a job order cost system. When a prospective customer asks for a price quote on a job, the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job, and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On July 10, 2008, an estimate of $805.20 for reupholstering a chair and couch was given to Ed Stone. The estimate was based on the following data:
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Estimated direct materials:
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12 meters at $20 per meter
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$240.00
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Estimated direct labor:
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15 hours at $13 per hour
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195
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Estimated factory overhead (35% of direct labor cost)
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68.25
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Total estimated costs
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$503.25
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Markup (60% of production costs)
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301.95
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Total estimate
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$805.20
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On July 16, the chair and couch were picked up from the residence of Ed Stone, 10 Publishers Lane, New York, with a commitment to return it on August 16. The job was completed on August 11.
The related materials requisitions and time tickets are summarized as follows:
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Materials Requisition No.
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Description
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Amount
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U642
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6 meters at $20
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$120
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U651
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8 meters at $20
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160
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Time Ticket No.
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Description
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Amount
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1519
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10 hours at $12
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$120
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1520
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8 hours at $12
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96
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Instructions
1. Complete that portion of the job order cost sheet that would be prepared when the estimate is given to the customer.
2. Assign number 00-8-38 to the job, record the costs incurred, and complete the job order cost sheet. Comment on the reasons for the variances between actual costs and estimated costs. For this purpose, assume that two meters of materials were spoiled, the factory overhead rate has been proved to be satisfactory, and an inexperienced employee performed the work.