QUESTION 6: Job + ABC costing [30 marks]

Tying the Knot, are a small wedding planning business located on the Sunshine Coast, Queensland, Australia. They currently use a job costing system to manage and track the cost of the weddings they manage.

This month they are planning three weddings. Each Wedding is tracked using a unique customer ID number. The materials and labour that have been used for each wedding is outlined below.

Cost Summary per Wedding	4000	4001	4002	Total
Direct Materials	$10 000	$20 00	$5 000	$35 000
Direct Labour	$1 200	$25 000	$ 800	$27 000

The budgeted overhead cost for the year is $350 000 and it is to be allocated based on total labour dollars. The budgeted total labour for the year is $100 000.

Required:

1. Based on the information provided, calculate the total cost of each wedding using the estimated overhead allocation rate. [5 marks].

1. Actual overhead for the month amounted to $100 000. Close the over applied or under applied overhead to cost of sales. [2.5 marks].

1. Wedding 4000 and 4001 were held in the month and paid for by the customer. Job 4002 is still being planning and due to be delivered next month. Review the journal entries prepared and identify four (4) errors and provide the correction. [ 10 marks]

Work-in-Process $ 35 000

Materials Inventory $ 35 000

Work-in-Process $ 20 000

Overhead Cost Control $7 000

Wages Payable $ 27 000

Work-in-Process $ 87 500

Overhead Cost Control $ 87 500

Overhead Cost Control $ 100 000

Various Accounts $ 100 000

Finished Goods $24 000

Work-in-Process $24 000

Jobs 4000 and 4002

Cost of sales $132 000

Finished Goods $132 000

1. Tying the Knot is trying to decide whether to use an ABC costing system to allocate its overhead costs. Based on the following cost allocation data calculate the allocation rates for the full year (display 2 decimal places). [5 marks]

	Cost	Cost Driver	Activity	Allocation Rate
Invitation Design Software	$40,000	Number of Invitations	350
Reception Venue Management	$160,000	Number of Attending Guests	320
Quality control	$150 000	Number of Bouquets	200
Total Overhead Costs	$350 000

1. Then using the following activity data calculate the total overhead cost that would be allocated to each wedding in the grey section below (round to the nearest whole dollar). [5 marks]

Allocation Rate	4000	4001	4002
Number of Invitations	$114.29	10	20	5
Number of Attending Guests	$500.00	42	95	25
Number of Bouquets	$750.00	5	10	5

Overhead Cost using ABC costing per Wedding:

	4000	4001	4002	Total
Number of Invitations
Number of Attending Guests
Number of Bouquets
Total ABC Overhead
Traditional Overhead

1. Which costing method would you recommend that they use traditional or ABC? [2.5 marks]