Beta Engineering are manufacturers of small metal fabrications. All items are made to order and quantities range
Question:
Beta Engineering are manufacturers of small metal fabrications. All items are made to order and quantities range from a single fabrication up to batches of 1000. Some fabrications require a substantial amount of machining or welding, others are largely hand made using simple hand tools. Because of the varying applications for the fabrications, the materials used vary widely; including special purpose alloy and stainless steels, non-ferrous metals and ordinary mild steel.
Sara Hall has recently commenced work at Beta Engineering as a Cost Clerk and is given the task of calculating the cost of each job. This is done by using the Estimate Sheet, prepared at the Quotation stage, and adjusting this for the actual materials used so as to find the actual job cost. The amount of material used is found from the Stores Issue notes.
Extracts from the Estimate Sheet for 50 stainless steel fuse holders and the subsequent Job Costs are shown below:
When this batch was made Sara totalled the Issue Notes and found that 173 Kgs of material had been used and accordingly prepared the following Job Cost:
After only a few weeks of doing this work, Sara had serious misgivings about the systems used which seem to have numerous problems.
Questions:-
1. Do you think that the method used for absorbing overheads is a good one? If not, why not?
2. What are some of the problems with the method used for calculating Job Costs?
3. What other methods of overhead absorption might be appropriate for this firm?
4. What are the main costing problems found in firms like Beta Engineering?
5. What features would you expect to find in a good Job Costing system for Beta Engineering?
6. Design a more appropriate Job Cost form.
Step by Step Answer:
