Roger Parker, the production manager of Products Company, entered the office of controller Harris Johnson and asked, “Harris, what gives here? I was charged for 330 direct labor hours on Job AD22, and my records show that we spent only 290 hours on that job. That 40-hour difference caused the total cost of direct labor and overhead for the job to increase by over $5,500. Are my records wrong, or was there an error in the direct labor assigned to the job?”
Harris replied, “Don’t worry about it, Roger. This job won’t be used in your quarterly performance evaluation. Job AD22 was a federal government job, a cost-plus contract, so the more costs we assign to it, the more profit we make. We decided to add a few hours to the job in case there is some follow-up work to do. You know how fussy the feds are.” What should Roger Parker do? Discuss Harris Johnson’s costing procedure.