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5.14 ** Calculate cost-driver rates; job-costing system Objectives 1, 2, 3 Impact Visuals Pty Ltd produces annual reports and marketing materials for large companies. There
5.14 ** Calculate cost-driver rates; job-costing system Objectives 1, 2, 3 Impact Visuals Pty Ltd produces annual reports and marketing materials for large companies. There are three categories of cost in its normal job-costing system: direct materials, direct labour and overhead (both variable and fixed), allocated on the basis of direct labour costs. Paula Preen, the management accountant, is concerned that clients are increasingly inclined to wait until the last minute to send in their final orders, causing congestion and an increase in the variable production overhead rate because of higher overtime and facility and machine maintenance. This spike is during the 'crazy' months of January, February and March, when many companies are rushing to get out their marketing materials. Paula obtains the following budgeted data for 2019: File Home Page Layout Insert A Formulas B Jan-Mar $900 000 $400 000 Data Review C April-June $620 000 $280 000 View Add-Ins D July-Sept $595 000 $250 000 E Oct-Dec $605 000 $270 000 F Total $2 720 000 $1 200 000 2 Direct materials 3 Direct labour costs Variable overhead costs as a 4 percentage of direct labour cost 5 Fixed overhead costs 90% 60% 60% $300 000 60% $300 000 $300 000 $300 000 $1 200 000 Impact Visuals Pty Ltd prices each job at 125% of costs. The company has received an order labelled job 332, for 150 000 sales catalogues for the local shopping centre. Actual direct materials costs for this job are $15 000 and actual labour costs are $10 000. Required 1. Calculate the cost of job 332: a. if it is completed in January-March 2019 and the budgeted overhead rate for that quarter is used to allocate overhead costs b. if it is completed in July-September 2019 and the budgeted overhead rate for that quarter is used to allocate overhead costs c. if the average budgeted overhead rate for the year 2019 is used to allocate overhead costs. 2. Impact Visuals Pty Ltd currently uses the budgeted variable overhead rate for the quarter in which the job is completed and a budgeted fixed overhead rate based on budgeted annual fixed overhead costs and budgeted annual direct labour costs. Calculate the cost of job 332 using this method if the job is done in: (a) January-March 2019 and (b) July- September 2019. 3. Recommend, with reasons, the method of costing jobs that is most suitable for pricing purposes at Impact Visuals Pty Ltd
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