Job costing

Job costing
Singapore Consulting is an engineering consulting firm. It employs 40 professional engineers, and 10 administrative and support staff. The
firm regards each customer as a job. It keeps track of all salaries, overhead costs and travel expenses incurred by its employees.
Employees are required to complete a weekly time-sheet showing the amount of time they spent on each customer’s account, and the expenses that
they incurred. The time-sheets also show how much time was spent on what the firm calls “non-chargeable costs” such as general administration
and idle time between jobs. The hourly cost of employee time is based on the annual salary, and a 2000-hour working year.
The firm applied overhead at the predetermined overhead rate of 60% of direct (actual) salary cost.
The firm’s CEO had produced the following estimates for 2017:
Salaries of professional staff
$1,188,000
Salaries of support personnel
121,000
Rent, utilities and other costs not directly billable to customers (or jobs)
565,000
In the first week of Jan 2017, three employees worked on a job for Samsung Electric. Their time and expenses are listed below:
Employee Hrs on Customer’s business Expenses
Peter Young
36 $360
Carolyn Leung
29 185
Bobo Choi
22 0
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As a junior engineer, Peter Young earned $23,500 per year. Carolyn Leung earned $38,200 as a senior engineer, whilst Bobo Choi earned $47,300
as a supervisor. Peter’s and Carolyn’s “expenses” referred to travel undertaken on the Samsung Electric job.
Singapore Consulting invoices its customers for actual (traceable) expenses (like travel), and charges customers twice the hourly salary cost
of employees’ work. The CEO expected20% of the salaries of the professional staff, and 50% of the administrative and support staff to be
“non-chargeable”. He considered non-chargeable time as part of overhead. (Note the estimated overhead cost of $565,000 for 2015 does not
include this salary cost. It is included in the salary figures for each category of employee.)
Required:
1.1) Compute the cost of work done for Samsung Electric in the first week of 2017.
(4 marks)
1.2) For this part, assume that the actual overhead cost incurred by the firm is the same as the budgeted overhead cost for 2017. Also, assume
that the budgeted salaries for professional staff and support personnel given in the case-facts, are the same as the actual costs in 2017.
i) Calculate the difference between the actual o/h costs incurred, and the amount of overhead applied to all jobs by the firm in the year
2017.
(3.5 marks)
(Hint: only details of one job (i.e. Samsung Electric) have been given in the case facts. However, the case-facts have provided the overhead
rate which should enable you to calculate the overhead that the firm would apply to all jobs undertaken in 2017).
ii) Based on (i) above, state whether the firm is employing an actual or normal cost-management system. Explain reasons for your choice.
(2.5 marks)
iii) Explain why the difference that you calculated in (i) above occurred. Your explanation should be in the context of the firm’s cost-
management system (identified in (ii) above).
(4 marks)
1.3) Is the actual or normal cost-management system a better system? Why? Explain in full.
(6 marks)
Total 20 marks
2) Weighted Average
The Tizer Drink Company manufactures a product (a drink cordial) that passes through three processing-departments: Mixing, Cooking and
Bottling.
In the Cooking department, materials are added at the end of the process. Conversion costs are incurred uniformly throughout the process.
During the month of June, the Cooking department received 30,000 units from the Mixing department. The transferred-in cost of the 30,000 units
was $139,800.
Costs added by Cooking during June included the following:
Direct materials $70,400
Direct labour $112,000
Overhead $51,200
On June 1, the Cooking department had 5,000 units in inventory that were 30% complete with respect to conversion costs. On June 30, 6,000
units were in inventory, one-third complete with respect to conversion costs. The costs associated with the 5,000 units in beginning inventory
were as follows:
Transferred-in $23,300
Direct labour $17,500
Overhead $8,000
Required:
a) Use the weighted average method to calculate the cost of production for units completed goods and ending WIP in the Cooking department as
at June 30.
(8.5 marks)
b) The job costing system specifically traces and allocates product costs to each job. Why is this approach not used in process costing?
Explain.
(5 marks)
c) Why is the concept of equivalent units used in process costing? Explain.
(1.5 marks)
(Total: 15 marks)
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