Cost Project Instructions Turn in the following with your project: 1. 3 completed job cost sheets (using 3 different methods of allocating overhead to the job) 2. Word document addressing e-h questions (found in the Case Study under Assignment 2). This should be in the format of a professional business memo. Project Explanation: Read through the Cost Project Case Study and familiarize yourself with the company's manufacturing processes. For this project, you need to complete a job cost sheet using a traditional cost system (ch. 17), using number of units as the allocation base for Job #101. That is how the company currently determines unit costs and therefore, sales price. There is a partially completed job cost sheet posted on Blackboard to help get you started. You are also being asked to come up with two other methods to allocate overhead to Job #101. So far in this course, we have covered job order costing (traditional cost system), process costing and ABC costing. Try and think of other ways of allocating overhead that would potentially give the company better cost data to make decisions with. Complete a job cost sheet for the two additional overhead allocation methods as well. Answer questions e-h in a Word document after completing the job cost sheets and bring the cost sheets and the printed word document to class to turn in. (3) Analyze the effectiveness of the current costing system. (4) Recommend an alternative to the current costing system. (5) Effectively communicate the results of the analysis in written form. CASE SCENARIO Company Background The Paper Products Factory (PPF) is a local manufacturer of a single product: paper party hats. They sell primarily to specialty stores in the Mid Atlantic region of the United States. There are several other national and international manufacturers of similar products; therefore it is a very competitive marketplace. The market is very price sensitive; small increases in price can result in large decreases in product demand. The PPF is a family owned company that employs approximately 100 people. The owner and CEO of the company is Brian Clark. At this time no other family members are involved in the business. The company employs administrative staff including the president, vice presidents, and support staff; engineers who design and develop the products; sales representatives; manufacturing labor; distribution center employees; and customer service representatives. Patrick Clark, the owner's son, recently completed his M.B.A. Wanting to impress his father with his newly acquired skills, he presented his father with a business proposal to add a second product line - paper chains. "Dad, by adding paper chains, we can expand our product line to our existing customer base. For the most part, our current sales and customer service structure can remain as is since we will be selling more products to our existing customers. We would need to add an additional Production Manager to oversee the new product line. We have excess manufacturing capacity, skilled labor, and almost all of the manufacturing equipment necessary to make the chains. We can offer our hourly employees more steady work. The only additional costs will be the additional capital investment involved due to the purchase of some specialized cutting machines, which will cost $180,000 and can be expected to last about five years. We'll also have to lease a bit more space." Brian Clark though it over for a few days. "Patrick, your proposal makes sense to me. By adding a product line, we should be able to decrease our unit product costs because our fixed costs will be spread over many more units. This should be good for the new chain product line and the hat product line. I can get additional manufacturing space by moving our administrative offices out of our manufacturing site and into an office complex nearby. This will free up more space in the factory. I looked in to the purchase of the cutting machines and it seems that we will be able to finance the purchase at a low interest rate. There's only one more thing to consider. I will implement your idea only on the condition that you will join the company as the production manager for paper chains." Patrick agreed and is now the Paper Chain Production Manager reporting to the Director of Manufacturing. There are a variety of manufacturing departments that are involved in producing the products including: Warehouse, Materials Handling, Cutting, Assembly, Finishing, Quality Control, and Factory Supervisor. Supervision is provided throughout the process. Quality Control is provided at the end of the manufacturing process. A description of each department and a diagram of the factory floor is included in Figure 1 (Appendix) - Description of Manufacturing Departments Panel A and Panel B. The PPF utilizes job order costing by assigning direct material, direct labor, and manufacturing overhead to each individual job. The costs are accumulated using a Job Cost Sheet. See Figure 2 (Appendix) - Blank Job Cost Sheet. Given the simple, one-product nature of the manufacturing and cost environment in the past, they have always used the following method for determining job costs: (1) Direct material and direct labor are traced to each job based on time cards and materials requisition requests. (2) Manufacturing Overhead is applied using the total actual manufacturing overhead cost for the month divided by the number of units produced in the month. The selling price of each job is determined using a cost-plus pricing method. The final selling price is 115% of the cost determined on the job cost sheet. The introduction of the paper chain product line has been a great success. During the six months that the company has offered the paper chains, demand has exceeded all of the initial projections. During September, PPF made and sold 80,000 paper chains, which is 50% higher than their initial projections. Brian Clark is thrilled with his son's performance, but has been less impressed with the Paper Hats Product Manager, Matt Brady. Mr. Clark remarked, Brady -- what is the problem with the sales for hats lately? Your sales have been down for the past five months. Maybe I should go out and hire another M.B.A. like Patrick. He sure knows how to bring in the sales and some fresh ideas." Matt Brady has been an excellent and loyal employee for over ten years. He has become frustrated with the decline in the sales of paper hats too. During September, PPF made and sold only 160,000 hats, which is far below their planned sales of 300,000 hats. I just can't compete in the marketplace anymore. My unit costs keep rising, and corporate forced us to raise prices to our customers in order to cover our product costs and meet targeted selling price. My unit costs were always around $0.75 per unit and now they are over $0.80 per unit. My previously loyal customers have switched to other lower cost providers. I need to better understand the manufacturing process and talk to the cost accountants to see if they can help figure out why my costs keep rising." The Manufacturing Process UWS. At the beginning of each day, the Factory General Manager consults with the sales department and determines which jobs will be completed for the day. The General Manager forwards the Job Cost Sheet and the materials requisition to the Materials Handling Department. Materials Handling obtains the materials needed for each job from the Warehouse stockroom and brings the materials to the appropriate department for the day's manufacturing. Paper Hats are manufactured as follows: (1) Paper is delivered by Materials Handling to the Assembly Department. (2) Paper sheets are folded into a cone shape, taped and stapled in the Assembly Department. Finished hats are moved to the Finishing Department (3) Hats are decorated in the Finishing Department using four stickers per hat. (4) Hats are placed on a table for inspection by Quality Control. Quality control also checks to ensure that the proper items are included in the order. The manufacturing process for paper chains is as follows: (1) Paper is delivered by Materials Handling to the Cutting Department. (2) Links are cut in to 2''by 8.5" strips. Five strips can be made from one sheet of paper. Cut strips are moved to the Assembly Department. (3) Each link is connected to the previous link and then taped and stapled in the Assembly Department. Completed chains are moved to the Finishing Department. (4) Chains are decorated in the Finishing Department using eight stickers per completed chain. (5) Chains are placed on a table for inspection by quality control. Chains are then inspected by Quality Control before being packed for shipment with the completed job. The following raw materials are used in order to manufacture these products: colored paper, staples, tape, and stickers. The following "manufacturing equipment" is used in this factory simulation: stapler, tape dispenser, and scissors. Your instructor will demonstrate the manufacture of each product and will walk through each of the job descriptions before you begin. Your role is twofold. Initially, you will be part of the manufacturing organization. Later you will assume the role of a cost accountant responsible for determining the cost of each product and job. Your instructor will serve as the Factory General Manager. Assignment 1 (a) Complete the manufacture of Job 101 (or the job assigned by your instructor). (b) Identify the major elements of the value chain for the Paper Products Factory. (c) Identify the various costs involved in making the products. (Do not concern yourself with dollar amounts at this point.) (d) Separate the list of costs identified as product or period costs. Further classify product costs as direct material, direct labor, and manufacturing overhead. The Product Costing Process D) The next step is to determine the cost to produce each job and each unit. PPF uses a job costing system, whereby each job is the cost object. Costs are accumulated by job as follows:(1) Direct material and direct labor are traced to each job based on the information obtained from the materials requisition requests and factory employee time cards (2) The company accumulates factory overhead into one Manufacturing Overhead cost pool. At the PPF, Manufacturing Overhead is applied using an application rate based on the total actual manufacturing overhead for the month divided by the total number of units produced. This rate is then applied to each job by multiplying the rate times the units for each job. The Paper Products Factory targets its selling price at 115% of product cost. Your instructor will hand out cost information and a partially completed job cost sheet for your use in completing Assignment 2. Actual levels of production and total manufacturing costs for the month of September are included on Exhibit 2-Costs and Cost Assumptions. A partially completed job cost sheet is included in Exhibit 3 - Partially Completed Job Cost Sheet. Assignment 2 (a) Trace the direct material and direct labor amounts used for each job and mark it on the Job Cost sheet. Your job consisted of 15 Hats and 10 Chains. The amounts of materials for the job can be found on the Materials Requisition Report (not included) and the Labor is found on the Labor time records (not included). These amounts have been input onto the Job Cost Sheet for you. See Exhibit 3 - Partially Completed Job Cost Sheet. Journal of Business Cases and Applications (b) Using one overhead cost pool and units as the cost driver, allocate the overhead to each job. (c) Why is the process of allocating overhead different from tracing direct material and direct labor costs? (d) Complete the Job Cost sheets by identifying the total product cost for each job. Next compute the cost for a unit of paper hats and a unit of paper chain. (e) What do you think is the cause of the increase in unit costs for paper hats? (f) Matt Brady has asked you help him identify some other methods for allocating overhead in the determination of product cost. Identify at least two other possible ways of allocating the overhead to each job. Recalculate the produt cost and targeted selling price of each job and each unit using the two methods of allocating overhead identified in (e). (g) What are the advantages and disadvantages of the methods identified? Which method would you recommend? (h) Write a memo to Brian Clark summarizing your findings and recommendations. Journal of Business Cases and Applications Figure 1 Description of Manufacturing Departments and Building Layout Panel A - Description of Manufacturing Departments Receiving / Warehouse Materials Handling Cutting Assembly Finishing Quality Control Responsible for storing and distributing raw materials used in the manufacturing process Responsible for requesting materials from Warehouse for the day's jobs. Also responsible for moving items in process between departments and keeping factory clean during downtime. Responsible for cutting the paper sheets used in products. Responsible for fastening the product parts. Responsible for decorating the products. Responsible for ensuring that products are made according to specification and checking the accuracy of the final jobs. Responsible for setting the manufacturing schedule after consulting with the Sales Department, coordinating materials ordering with the Purchasing Department, and supervising the manufacturing process. Factory General Manager Panel B - Building Layout Warehouse Cutting Department Factory Offices - Supervisor, QC, etc. Assembly Department Finishing Department Figure 2 Blank Job Cost Sheet JOB # Amounts Ordered: HATS CHAINS Date started Date completed HATS Cost per each Total $ CHAINS Cost per each Total # # Direct Material Paper Stickers Total Direct Material Direct Material Paper Stickers Total Direct Material Total Cost/hr. Total $ Cost/hr. #hrs Cutting Labor Assembly Labor Finishing Labor Total Direct Labor # hrs Cutting Labor Assembly Labor Finishing Labor Direct Labor Cost driver Cost/unit of cost driver Cost driver Cost/unit of cost driver Total $ Total $ Mfg Overhead Mfg Overhead Total Mfg. overhead Total Product Cost Cost per unit Selling Price per unit Total Mfg. overhead Total Product Cost Cost per unit Selling Price per unit Overhead Calculation Journal of Business Cases and Applications Lightbody, M. 1997. Playing factory: active-based learning in cost and management accounting, Accounting Education (Volume 6, No. 3), 255-262. Appendix Exhibit 1 Costs and Cost Classifcations Product Costs Paper Stickers Direct labor -- Cutting/Assembly/Finishing Staples Tape Quality control labor Supervisory labor Other indirect labor (stockroom, materials handling) Depreciation on tape machines Depreciation on stapling machines Depreciation on cutting machine Depreciation on the factory portion of the building Taxes on the factory portion of the building direct material direct material direct labor indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead * Could be classified as direct material; however, treat as indirect since it is not cost effective to trace immaterial items to jobs and products. Other Value Chain Costs Design Customer service Sales Administative Salaries Depreciation and taxes on the office portion of the building Exhibit 2 Costs and Assumptions Costs for the Month of September Production and sales of Hats Production and sales of Chains Total Production and Sales for September 160,000 units 80,000 units 240,000 $ $ Direct Material # Sheets of paper used to make HATS # Sheets of paper used to make CHAINS #stickers to make HATS #stickers to make CHAINS TOTAL DIRECT MATERIAL (SEPTEMBER) I per unit 1 per unit per unit 8 per unit $ $ $ $ 0.05 per sheet 0.05 per sheet 0.01 each 0.01 each 8,000.00 4,000.00 6,400.00 6,400.00 24,800.00 S $ Hats Total Direct Labor HOURS Cutting labor hours Assembly labor hours Finishing labor hours TOTAL DIRECT LABOR HOURS (SEPTEMBER) 2,500 2,500 5,000 Chains 1,500 3,000 1.500 6,000 1,500 5,500 4.(MM) 11,000 Cost per Hats Direct Labor COSTS Cutting labor Assembly labor Finishing labor TOTAL DIRECT LABOR COSTS Cost per hour $ 15.00 $ 15.00 $ 15.00 37,500 37,500 Chains Total 22.500 $ 22,500.00 45,000 $ 82,500.00 22,500 $ 60,000.00 $ 165,000.00 S 12 80000 $ $ $ 40.00 per hour 60.00 per hour 15,00 per hour 960 hours $ $ Manufacturing Overhead (TOTALS) Quality control hours 320 hours Indirect labor -- Supervisor 360 Other indirect labor (stockroom, materials handling) Depreciation on tape machines $1,000 per month Depreciation on stapling machines $2,000 per month Depreciation on cutting machine $3,000 per month Rent and taxes on the factory $10,000 per month Utilities $1,500 per month Staples Tape TOTAL MANUFACTURING OVERHEAD (SEPTEMBER) 21,600.00 14,400.00 1,000.00 2,000.00 3,000.00 10,000.00 1,500.00 100.00 150.00 66,550.00 $ TOTAL PRODUCT COSTS FOR SEPTEMBER $ 91,350.00 Exhibit 3 Partially completed Job Cost Sheet [JOB # Amounts Ordered: HATS CHAINS Date started Date completed HATS CHAINS 1 # Cost per each 15| Total $ Direct Material Paper Stickers Total Direct Material Direct Material Paper Stickers Total Direct Material # Cost per each Total $ 1 01 80 Total #hrs Cost/hr. Total $ Cutting Labor Assembly Labor Finishing Labor Total Direct Labor 0.251 0.25 # hrs Cost/hr. Cutting Labor | 0.15 Assembly Labor 0.3 Finishing Labor | 0.15 0.5 Direct Labor 0.6 Total Cost driver Cost/unit of cost driver Cost driver Cost/unit of cost drivers Total $ Mfg Overhead * Mfg Overhead Total Mfg. overhead Total Product Cost Cost per unit Selling Price per unit Total Mfg. overhead Total Product Cost Cost per unit Selling Price per unit "Overhead Calculations Cost Project Instructions Turn in the following with your project: 1. 3 completed job cost sheets (using 3 different methods of allocating overhead to the job) 2. Word document addressing e-h questions (found in the Case Study under Assignment 2). This should be in the format of a professional business memo. Project Explanation: Read through the Cost Project Case Study and familiarize yourself with the company's manufacturing processes. For this project, you need to complete a job cost sheet using a traditional cost system (ch. 17), using number of units as the allocation base for Job #101. That is how the company currently determines unit costs and therefore, sales price. There is a partially completed job cost sheet posted on Blackboard to help get you started. You are also being asked to come up with two other methods to allocate overhead to Job #101. So far in this course, we have covered job order costing (traditional cost system), process costing and ABC costing. Try and think of other ways of allocating overhead that would potentially give the company better cost data to make decisions with. Complete a job cost sheet for the two additional overhead allocation methods as well. Answer questions e-h in a Word document after completing the job cost sheets and bring the cost sheets and the printed word document to class to turn in. (3) Analyze the effectiveness of the current costing system. (4) Recommend an alternative to the current costing system. (5) Effectively communicate the results of the analysis in written form. CASE SCENARIO Company Background The Paper Products Factory (PPF) is a local manufacturer of a single product: paper party hats. They sell primarily to specialty stores in the Mid Atlantic region of the United States. There are several other national and international manufacturers of similar products; therefore it is a very competitive marketplace. The market is very price sensitive; small increases in price can result in large decreases in product demand. The PPF is a family owned company that employs approximately 100 people. The owner and CEO of the company is Brian Clark. At this time no other family members are involved in the business. The company employs administrative staff including the president, vice presidents, and support staff; engineers who design and develop the products; sales representatives; manufacturing labor; distribution center employees; and customer service representatives. Patrick Clark, the owner's son, recently completed his M.B.A. Wanting to impress his father with his newly acquired skills, he presented his father with a business proposal to add a second product line - paper chains. "Dad, by adding paper chains, we can expand our product line to our existing customer base. For the most part, our current sales and customer service structure can remain as is since we will be selling more products to our existing customers. We would need to add an additional Production Manager to oversee the new product line. We have excess manufacturing capacity, skilled labor, and almost all of the manufacturing equipment necessary to make the chains. We can offer our hourly employees more steady work. The only additional costs will be the additional capital investment involved due to the purchase of some specialized cutting machines, which will cost $180,000 and can be expected to last about five years. We'll also have to lease a bit more space." Brian Clark though it over for a few days. "Patrick, your proposal makes sense to me. By adding a product line, we should be able to decrease our unit product costs because our fixed costs will be spread over many more units. This should be good for the new chain product line and the hat product line. I can get additional manufacturing space by moving our administrative offices out of our manufacturing site and into an office complex nearby. This will free up more space in the factory. I looked in to the purchase of the cutting machines and it seems that we will be able to finance the purchase at a low interest rate. There's only one more thing to consider. I will implement your idea only on the condition that you will join the company as the production manager for paper chains." Patrick agreed and is now the Paper Chain Production Manager reporting to the Director of Manufacturing. There are a variety of manufacturing departments that are involved in producing the products including: Warehouse, Materials Handling, Cutting, Assembly, Finishing, Quality Control, and Factory Supervisor. Supervision is provided throughout the process. Quality Control is provided at the end of the manufacturing process. A description of each department and a diagram of the factory floor is included in Figure 1 (Appendix) - Description of Manufacturing Departments Panel A and Panel B. The PPF utilizes job order costing by assigning direct material, direct labor, and manufacturing overhead to each individual job. The costs are accumulated using a Job Cost Sheet. See Figure 2 (Appendix) - Blank Job Cost Sheet. Given the simple, one-product nature of the manufacturing and cost environment in the past, they have always used the following method for determining job costs: (1) Direct material and direct labor are traced to each job based on time cards and materials requisition requests. (2) Manufacturing Overhead is applied using the total actual manufacturing overhead cost for the month divided by the number of units produced in the month. The selling price of each job is determined using a cost-plus pricing method. The final selling price is 115% of the cost determined on the job cost sheet. The introduction of the paper chain product line has been a great success. During the six months that the company has offered the paper chains, demand has exceeded all of the initial projections. During September, PPF made and sold 80,000 paper chains, which is 50% higher than their initial projections. Brian Clark is thrilled with his son's performance, but has been less impressed with the Paper Hats Product Manager, Matt Brady. Mr. Clark remarked, Brady -- what is the problem with the sales for hats lately? Your sales have been down for the past five months. Maybe I should go out and hire another M.B.A. like Patrick. He sure knows how to bring in the sales and some fresh ideas." Matt Brady has been an excellent and loyal employee for over ten years. He has become frustrated with the decline in the sales of paper hats too. During September, PPF made and sold only 160,000 hats, which is far below their planned sales of 300,000 hats. I just can't compete in the marketplace anymore. My unit costs keep rising, and corporate forced us to raise prices to our customers in order to cover our product costs and meet targeted selling price. My unit costs were always around $0.75 per unit and now they are over $0.80 per unit. My previously loyal customers have switched to other lower cost providers. I need to better understand the manufacturing process and talk to the cost accountants to see if they can help figure out why my costs keep rising." The Manufacturing Process UWS. At the beginning of each day, the Factory General Manager consults with the sales department and determines which jobs will be completed for the day. The General Manager forwards the Job Cost Sheet and the materials requisition to the Materials Handling Department. Materials Handling obtains the materials needed for each job from the Warehouse stockroom and brings the materials to the appropriate department for the day's manufacturing. Paper Hats are manufactured as follows: (1) Paper is delivered by Materials Handling to the Assembly Department. (2) Paper sheets are folded into a cone shape, taped and stapled in the Assembly Department. Finished hats are moved to the Finishing Department (3) Hats are decorated in the Finishing Department using four stickers per hat. (4) Hats are placed on a table for inspection by Quality Control. Quality control also checks to ensure that the proper items are included in the order. The manufacturing process for paper chains is as follows: (1) Paper is delivered by Materials Handling to the Cutting Department. (2) Links are cut in to 2''by 8.5" strips. Five strips can be made from one sheet of paper. Cut strips are moved to the Assembly Department. (3) Each link is connected to the previous link and then taped and stapled in the Assembly Department. Completed chains are moved to the Finishing Department. (4) Chains are decorated in the Finishing Department using eight stickers per completed chain. (5) Chains are placed on a table for inspection by quality control. Chains are then inspected by Quality Control before being packed for shipment with the completed job. The following raw materials are used in order to manufacture these products: colored paper, staples, tape, and stickers. The following "manufacturing equipment" is used in this factory simulation: stapler, tape dispenser, and scissors. Your instructor will demonstrate the manufacture of each product and will walk through each of the job descriptions before you begin. Your role is twofold. Initially, you will be part of the manufacturing organization. Later you will assume the role of a cost accountant responsible for determining the cost of each product and job. Your instructor will serve as the Factory General Manager. Assignment 1 (a) Complete the manufacture of Job 101 (or the job assigned by your instructor). (b) Identify the major elements of the value chain for the Paper Products Factory. (c) Identify the various costs involved in making the products. (Do not concern yourself with dollar amounts at this point.) (d) Separate the list of costs identified as product or period costs. Further classify product costs as direct material, direct labor, and manufacturing overhead. The Product Costing Process D) The next step is to determine the cost to produce each job and each unit. PPF uses a job costing system, whereby each job is the cost object. Costs are accumulated by job as follows:(1) Direct material and direct labor are traced to each job based on the information obtained from the materials requisition requests and factory employee time cards (2) The company accumulates factory overhead into one Manufacturing Overhead cost pool. At the PPF, Manufacturing Overhead is applied using an application rate based on the total actual manufacturing overhead for the month divided by the total number of units produced. This rate is then applied to each job by multiplying the rate times the units for each job. The Paper Products Factory targets its selling price at 115% of product cost. Your instructor will hand out cost information and a partially completed job cost sheet for your use in completing Assignment 2. Actual levels of production and total manufacturing costs for the month of September are included on Exhibit 2-Costs and Cost Assumptions. A partially completed job cost sheet is included in Exhibit 3 - Partially Completed Job Cost Sheet. Assignment 2 (a) Trace the direct material and direct labor amounts used for each job and mark it on the Job Cost sheet. Your job consisted of 15 Hats and 10 Chains. The amounts of materials for the job can be found on the Materials Requisition Report (not included) and the Labor is found on the Labor time records (not included). These amounts have been input onto the Job Cost Sheet for you. See Exhibit 3 - Partially Completed Job Cost Sheet. Journal of Business Cases and Applications (b) Using one overhead cost pool and units as the cost driver, allocate the overhead to each job. (c) Why is the process of allocating overhead different from tracing direct material and direct labor costs? (d) Complete the Job Cost sheets by identifying the total product cost for each job. Next compute the cost for a unit of paper hats and a unit of paper chain. (e) What do you think is the cause of the increase in unit costs for paper hats? (f) Matt Brady has asked you help him identify some other methods for allocating overhead in the determination of product cost. Identify at least two other possible ways of allocating the overhead to each job. Recalculate the produt cost and targeted selling price of each job and each unit using the two methods of allocating overhead identified in (e). (g) What are the advantages and disadvantages of the methods identified? Which method would you recommend? (h) Write a memo to Brian Clark summarizing your findings and recommendations. Journal of Business Cases and Applications Figure 1 Description of Manufacturing Departments and Building Layout Panel A - Description of Manufacturing Departments Receiving / Warehouse Materials Handling Cutting Assembly Finishing Quality Control Responsible for storing and distributing raw materials used in the manufacturing process Responsible for requesting materials from Warehouse for the day's jobs. Also responsible for moving items in process between departments and keeping factory clean during downtime. Responsible for cutting the paper sheets used in products. Responsible for fastening the product parts. Responsible for decorating the products. Responsible for ensuring that products are made according to specification and checking the accuracy of the final jobs. Responsible for setting the manufacturing schedule after consulting with the Sales Department, coordinating materials ordering with the Purchasing Department, and supervising the manufacturing process. Factory General Manager Panel B - Building Layout Warehouse Cutting Department Factory Offices - Supervisor, QC, etc. Assembly Department Finishing Department Figure 2 Blank Job Cost Sheet JOB # Amounts Ordered: HATS CHAINS Date started Date completed HATS Cost per each Total $ CHAINS Cost per each Total # # Direct Material Paper Stickers Total Direct Material Direct Material Paper Stickers Total Direct Material Total Cost/hr. Total $ Cost/hr. #hrs Cutting Labor Assembly Labor Finishing Labor Total Direct Labor # hrs Cutting Labor Assembly Labor Finishing Labor Direct Labor Cost driver Cost/unit of cost driver Cost driver Cost/unit of cost driver Total $ Total $ Mfg Overhead Mfg Overhead Total Mfg. overhead Total Product Cost Cost per unit Selling Price per unit Total Mfg. overhead Total Product Cost Cost per unit Selling Price per unit Overhead Calculation Journal of Business Cases and Applications Lightbody, M. 1997. Playing factory: active-based learning in cost and management accounting, Accounting Education (Volume 6, No. 3), 255-262. Appendix Exhibit 1 Costs and Cost Classifcations Product Costs Paper Stickers Direct labor -- Cutting/Assembly/Finishing Staples Tape Quality control labor Supervisory labor Other indirect labor (stockroom, materials handling) Depreciation on tape machines Depreciation on stapling machines Depreciation on cutting machine Depreciation on the factory portion of the building Taxes on the factory portion of the building direct material direct material direct labor indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead indirect -- manufacturing overhead * Could be classified as direct material; however, treat as indirect since it is not cost effective to trace immaterial items to jobs and products. Other Value Chain Costs Design Customer service Sales Administative Salaries Depreciation and taxes on the office portion of the building Exhibit 2 Costs and Assumptions Costs for the Month of September Production and sales of Hats Production and sales of Chains Total Production and Sales for September 160,000 units 80,000 units 240,000 $ $ Direct Material # Sheets of paper used to make HATS # Sheets of paper used to make CHAINS #stickers to make HATS #stickers to make CHAINS TOTAL DIRECT MATERIAL (SEPTEMBER) I per unit 1 per unit per unit 8 per unit $ $ $ $ 0.05 per sheet 0.05 per sheet 0.01 each 0.01 each 8,000.00 4,000.00 6,400.00 6,400.00 24,800.00 S $ Hats Total Direct Labor HOURS Cutting labor hours Assembly labor hours Finishing labor hours TOTAL DIRECT LABOR HOURS (SEPTEMBER) 2,500 2,500 5,000 Chains 1,500 3,000 1.500 6,000 1,500 5,500 4.(MM) 11,000 Cost per Hats Direct Labor COSTS Cutting labor Assembly labor Finishing labor TOTAL DIRECT LABOR COSTS Cost per hour $ 15.00 $ 15.00 $ 15.00 37,500 37,500 Chains Total 22.500 $ 22,500.00 45,000 $ 82,500.00 22,500 $ 60,000.00 $ 165,000.00 S 12 80000 $ $ $ 40.00 per hour 60.00 per hour 15,00 per hour 960 hours $ $ Manufacturing Overhead (TOTALS) Quality control hours 320 hours Indirect labor -- Supervisor 360 Other indirect labor (stockroom, materials handling) Depreciation on tape machines $1,000 per month Depreciation on stapling machines $2,000 per month Depreciation on cutting machine $3,000 per month Rent and taxes on the factory $10,000 per month Utilities $1,500 per month Staples Tape TOTAL MANUFACTURING OVERHEAD (SEPTEMBER) 21,600.00 14,400.00 1,000.00 2,000.00 3,000.00 10,000.00 1,500.00 100.00 150.00 66,550.00 $ TOTAL PRODUCT COSTS FOR SEPTEMBER $ 91,350.00 Exhibit 3 Partially completed Job Cost Sheet [JOB # Amounts Ordered: HATS CHAINS Date started Date completed HATS CHAINS 1 # Cost per each 15| Total $ Direct Material Paper Stickers Total Direct Material Direct Material Paper Stickers Total Direct Material # Cost per each Total $ 1 01 80 Total #hrs Cost/hr. Total $ Cutting Labor Assembly Labor Finishing Labor Total Direct Labor 0.251 0.25 # hrs Cost/hr. Cutting Labor | 0.15 Assembly Labor 0.3 Finishing Labor | 0.15 0.5 Direct Labor 0.6 Total Cost driver Cost/unit of cost driver Cost driver Cost/unit of cost drivers Total $ Mfg Overhead * Mfg Overhead Total Mfg. overhead Total Product Cost Cost per unit Selling Price per unit Total Mfg. overhead Total Product Cost Cost per unit Selling Price per unit "Overhead Calculations