1. Describe the types of direct material costs Custom should track as Custom manufacturers each custom-made guitarThe types of direct material costs Custom should track would be the cost of wood for the body of the guitar, the cost of machine time to cut the wood, the cost of labor for each guitar being built. When looking at building a guitar, there is much more than just strings and a body. The cost for screws, and tuning bits, making sure each piece of wood is not warped because then we have to look at the cost of wasted material as well as material that will be used.
2. How should Custom deal with an item like spoilage as Custom manufacturers each custom-made guitar?Custom should use the spoilage to make "defected" guitars that can be sold for half the price, or be sold as beginner guitars. Maybe sell the guitars to a guitar teacher, or school in order to have beginners learn on guitars that were not able to be sold from custom.
3. What type of source document would support the cost of, for example, the guitar strings being charged to each job and related job cost sheet?A direct material fixed cost sheet will do great for material used to build the guitars. String costs are pretty base line and the price does not fluctuate.
4. Describe in some level of detail the types of direct labor costs Custom should track as Custom manufacturers each custom-made guitar.Direct labor costs would be the labor needed to build each guitar. The direct labor to build each guitar takes time and focus in order to create a quality piece of equipment that will be worth the $500-$5,000 range that they are going to be sold at. The amount of time it takes to tune each guitar just right and make sure they will not break or be defective for the consumer.
5. Should Custom, first, determine what their competition is selling each custom-made guitar for first, or should Custom first determine what the product cost will be for each custom-made guitar before setting their selling prices? Address the advantages and the disadvantages of both and include how job costing information and the related job cost sheets will potentially support either possibility. I think Custom should look at competition first in order to find a base line. As a new company they have not yet proven that they are worth more money than a company that has been around a lot longer. The disadvantage to that is they might lose out on some profit in the beginning, if they set their own prices first they might not make many sales due to other competitors being cheaper with the same quality. The advantage to them setting their own price first is that it might be cheaper than competition, and that they might make more money in the long run.