Job costing; actual, normal and extended normal. (20-30 minutes)
Scandinavian Car Services (SCS) services and repairs Volvo cars. It employs eight car mechanics. SCS prides itself on quick turnaround of cars being serviced. It announced in December 2000 that in 2001 it will charge each customer a EUR 500 per hour rate for mechanic time spent on a job plus a charge at 20% over cost for parts and materials. The EUR 500 per hour charge to customers incorporates

(a) a mechanic’s pay

(b) the costs of all the support facilities that are allocated to jobs on the basis of actual mechanic time spent on each job and

(c) a profit component on the job.
Budgeted and actual data for 2001 are as follows:

REQUIRED A car repair job done in May 2001 took 2.5 hours and required parts and materials for which the customer was charged EUR 750.00 Gncludes 20% charge on cost).
1. Identify the direct-cost rate per car mechanic hour and the indirect-cost rate per car mechanic that SCS would use to cost jobs done in May 2001 under

(a) actual costing,

(b) normal costing and

(c) extended normal costing.
Calculate the 2001 job cost using

(a) actual costing,

(b) normal costing and

(c) extended normal costing. Explain any differences. Why might a customer of SCS object to the job being charged at an agreed-upon markup (say 25%)
tied to actual cost rates? l01

Transcribed Image Text:

BUDGET FOR 2001 Car mechanic's pay EUR 2,400,000 Service-area support costs Mechanic hours billed to jobs EUR 2,800,000 16,000 hours ACTUAL RESULTS FOR 2001 Service-area support costs Mechanic hours billed to jobs EUR 2,560,000 12,800 hours In April 2001, the government introduced a 100% increase in duties on imported cars. This change led to a reduction in Volvos being serviced by SCS in the remainder of 2001. During May 2001, the actual hourly rate for car mechanics was EUR 180.