Week 2 Textbook Exercises- Exercise 5.17 Job Costing, Service Sector: Consider the following budgeted data for a client job of Bob Crachit’s accounting firm. The client wants a fixed price quotation. Direct professional labor $20,000 Direct support labor 10,000 Fringe benefits for direct labor 13,000 Photocopying 2,0 00 Telephone calls 2,000 Computer equipment 6,000
Overhead is allocated at the rate of 100% of direct labor cost. Required: A. Prepare a schedule of the budgeted total costs for the client. Show subtotals for total direct labor costs and total costs as a basis for markup. B. Assume that the partner’s policy is to quote a fixed fee at 10% above the total costs. What fee would be quoted? C. Explain why the listed estimates for costs might not be similar to the actual costs for the job. What factors could affect the accuracy of these estimates? List as many factors as you can. Mini-Cases 6.55 – Costs of workplace health and safety Britain’s Health and Safety Executive (HSE) is a national regulatory body overseeing workplace health and safety. In its 2007 performance report, HSE reported the following statistics: • 241 workers were killed at work. • 141,350 employees suffered serious injuries at work. • 2.2 million people were suffering from an illness they believed was caused or made worse by their current or past work. 646,000 of these were new cases in the last 12 months. • 36 million days were lost overall (1.5 days per worker), 30 million due to work-related ill health and 6 million due to workplace injury. • £20 billion (approximately 2% of GDP) is the estimated annual cost to society of work-related accidents and ill health. To promote improved health and safety, HSE provides strategic direction, investigates and enforces regulations, and works with employers and other groups to promote better workplace practices. HSE provides guidance for common sources of injury or illness, including the following. • Slips, trips and falls • Hazardous substances such as chemicals, dust, fumes, and bacteria • Musculoskeletal disorders • Noise • Electricity • Work equipment and machinery • Maintenance and building work • Workplace transport • Fire and explosion • Radiation • Stress Required: a) Employers incur many costs because of health and safety issues, including: • Lost worker time • Employer-paid medical costs • Training to replace workers who are ill or injured • Record-keeping to comply with governmental regulation How would each of these costs be recognized in a process costing system? b) Who is responsible for workplace health and safety? Discuss the responsibilities for each of the following groups: • Governments • Workers • Employers • Customers • Managers
c) What goal should an individual company establish for workplace health and safety? Should the goal be to meet government regulations? Should the goal be to experience zero health and safety incidents? Or is some other goal appropriate? What values did you use to arrive at your answer? Exercise 7.21 ABC, ABM (CMA): Applewood Electronics manufactures two large-screen television models, the Monarch, which has been produced for five years and sells for $900, and the Regal, a new model that sells for $1,140. Applewood’s CEO, Harry Hazelwood, suggested that the company should concentrate its marketing resources on the Regal model and begin to phase out the Monarch model. Applewood currently uses a traditional costing system. The following cost information has been used as a basis for pricing decisions over the past year. Per-Unit Data Monarch Regal Direct materials $208 $584 Direct labor hours 1.5 3.5 Machine hours 8.0 4.0 Units produced 22,000 4,000
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Direct labor cost is $12 per hour, and the machine usage cost is $18 per hour. Manufacturing overhead costs were estimated at $4,800,000 and were allocated on the basis of machine hours. Martin Alecks, the new company controller, suggested that an activity-based costing analysis first be run to get a better picture of the true manufacturing cost. The following data were collected: Activity Center Cost Driver Traceable Costs Soldering Number of solder joints $942,000 Shipments Number of shipments 860,000 Quality control Number of inspections 1,240,000 Purchase orders Number of orders 950,400 Machining Machine hours 57,600 Machine setups Number of setups 750,000 Total traceable costs $4,800,000
Number of Events Activity Monarch Regal Total Soldering 1,185,000 385,000 1,570,000 Shipments 16,200 3,800 20,000 Quality control 56,200 21,300 77,500 Purchase orders 80,100 109,980 190,080 Machining 176,000 16,000 192,000 Machine setups 16,000 14,000 30,000
Selling, general, and administrative expenses per unit sold are $265.00 for Monarch and $244.50 for Regal. A. Calculate the manufacturing cost per unit for Monarch and Regal under: 1. A traditional costing system 2. The ABC system B. Explain the differences in manufacturing cost per unit calculated in part (A). C. Calculate the operating profit per unit for Monarch and Regal under: 1. A traditional costing system 2. The ABC system D. Should Applewood concentrate its marketing efforts on Monarch or on Regal? Explain how the use of ABC affects your recommendation.