Jayne Allen, an artist, plans to make her living drawing customer portraits at a stand in Underground Atlanta. She will carry her drawing equipment and supplies to work each day in bags. By displaying two of her best hand-drawn portraits on either side of her stand, she expects to attract tourists’ attention. Ms. Allen can usually draw a customer’s portrait in 30 minutes. Her materials cost is minimal, about $2 for a portrait. Her most significant cost will be leasing the stand for $1,200 per month. She estimates she can replace supplies and worn out equipment for $50 per month. She plans to work 20 days each month from noon to 9:00 P.M. After surveying her planned work environment before beginning the business, she observed that six other artists were providing customer portraits in that section of Underground Atlanta. Their portrait prices ranged from $25 to $45 per portrait. They also offered to frame portraits for customers at $15 per frame. Ms. Allen found that she could obtain comparable frames for $5 each and that properly framing a portrait takes about 10 minutes. The biggest challenge, Ms. Allen observed, was attracting tourists’ interest. If she could draw portraits continuously during her workdays, she could earn quite a respectable income. But she noticed several of the artists were reading magazines as she walked by.
Required
a. Should Ms. Allen use a job-order or process costing system for her art business?
b. List the individual types of costs Ms. Allen will likely incur in providing portraits.
c. How could Ms. Allen estimate her overhead rate per portrait when she does not know the number of portraits she will draw in a month?
d. Ms. Allen will not hire any employees. Will she have labor cost? Explain.