Chapter 3 : Job- order costing

3.1 Just the Right Stuff

April 7, 20X3

You have just finished your third year of university and are looking for a summer job. You are registered in an accounting program, and hope to one day earn a professional accounting designation. As you are job searching, you come across a unique posting:

WANTED: ACCOUNTING SUMMER STUDENT THE DEETS:

Want to work at a cool place and be an accountant at the same time?? We have JUST the place for you! We are a group of students starting our own business. We dont have much money, but there should be enough to pay you enough to party and eat for four months. One day, we all could be rich. As we are a startup, we cant give you too much of the scoop. E-mail us your resum and we might e-mail you for an interview.

April 20, 20X3

After meeting with Ajay and Mona, the two co-founders of Just the Right Stuff , you accept the position willingly. You are excited to help them get their new business off the ground and cant wait to see the opportunities it will bring.

May 1, 20X3

On your first day of work, Ajay asks you to review their business proposal, which should give you an understanding of the business at Just the Right Stuff . From your reading, you understand the following: Funding Just the Right Stuff has just been awarded a grant from the government to use as start-up funds. Both Ajay and Mona have received money from family who love the idea and wanted to make an investment. The total amount of start-up funds is $50,000. Ajay and Mona hope to earn a 15% return on their investment.

The Idea

Just the Right Stuff is an on-line graphic design business. If a person needs a design, they can post their detailed request on-line and the price they are willing to pay for the design. Just the Right Stuff has three graphic designers. If there is a designer willing to accept the job, the job will proceed as long as the price suggested by the customer is reasonable. Th e customer will receive a soft copy of the design, as well as a professional printed design. Each design will be printed on high-quality paper. The number of pages used will depend on the size of the design.

Chapter 3: Job-Order Costing 9 Your Job As the business gets off the ground, there will be many jobs for you, including budgeting, forecasting, pur chasing, invoicing, and financial reporting. However, right now, Mona and Ajay need to understand the best way to determine whether or not they should accept a design. After a discussion with them, you understand that in order to get the company going, they would accept virtually any job that doesn't result in a loss. They have provided you with a list of expenses (Exhibit 1) and asked you to develop a process that should be considered whenever a job design is posted to help determine whether they should accept the job. Ajay and Mona expect that they will have 5,000 designs posted to the website in the first year and intend to produce 3,000. On average, each design will be printed on two pages of paper Required Provide Mona and Ajay with the details of your proposed process for them to consider whether to accept a design EXHIBIT 1 EXPECTED COSTS Cost Item Printer ink Specialty paper Graphic designers' wages Co-founders' wages Accountant's wages Website Shipping Total Estimated Totals per Year Selected Notes 3,000 5,000 120,000 20,000 5,000 9,000 1,000 $163,000 For 2,500 sheets Graphic designers are paid $20 per hour $10,000 each