TREASURE TROPHY COMPANY

Bob Morden, Treasure Trophy Company's new general manager, was about to set the selling prices for an order from the Royal Golf Club. The club had requested quotes before deciding on their purchase. Morden wondered what his own company's (i.e., the manufacturer's) costs were for filling the order so that he could provide a competitive quote on the order.

TreasureTrophyCompany(Treasure)manufacturedtrophiesforallkindsofsports,businessesand celebratory events. All trophies were made to order, sometimes for retail stores and sometimes directly for the organizers of the events. Several trophy manufacturers competed for this business, and since their capabilities were about the same, prices were set with reference to a fairly narrow competitive range. Treasure used a job order system of cost accumulation. The company did not use a standard cost system since its products were all customized.

The manufacturing process was divided into three departments: forming, finishing and assembly. The raw materials were machined to make up finished parts in the forming department. In the finishing department, these parts were sanded, polished, lacquered or subjected to whatever other finishing operations the job required. Any engraving( khc) was done in the finishing department. The assembly operation involved joining parts together to form the trophy, which most commonly meant gluing. Decals might also be glued onto trophies in the finishing department, particularly in the case of less expensive trophies that had little or no engraving. The company's budgeted costs for the year 2014 are shown in Exhibit 1.

A single supervisor oversawallthreedepartments.Hisresponsibilitiesincludedschedulingorders, ensuring that schedules were met, and verifying that trophies were produced to specifications.

The costs shown for shipping did not include any allocation of rent or light and heat. The entire factory building was rented. It had a floor area of 15,000 square feet. The forming department contained 4,000 square feet; the finishing and assembly departments each occupied 3,000 square feet, and the remainder of the building was used for offices, material storage, and shipping and receiving.

The forming department had two machines, each rated at 15 horsepower, and the finishing department had two 10-horsepower machines. All work in the assembly department was done by hand. The machines in the forming department had originally cost $360,000, and the ones in the finishing department had cost

$240,000. All machinery was depreciated over 10 years using the straight-line method with no estimated residual value. Insurance expense was calculated based on the historical cost of the machines.

The best estimate for repairs expenses was based on the proportionate horsepower of the machines. No supplies were required for the forming department since all the material used was considered a direct material cost. Supplies expenses were roughly equal for the finishing and assembly departments.

A job cost sheet was prepared by the supervisor for every order processed by the company. Exhibit 2 contains an incomplete job cost sheet for Job Order No. 35, which required 80 golfing trophies.

The budgeted direct labour cost of $210,000 was made up of $56,000 for the forming department, $84,000 forthefinishingdepartment,and$70,000fortheassemblydepartment.Exhibit3containsacost assignment and allocation worksheet, which had recently been designed by the supervisor.

Morden sat down to set a price for the Royal Golf Club order. To begin with, he wondered what Treasure's costs were for filling the order. As well, he was concerned about what factors should be taken into account in the pricing process and what price should be quoted on the order.

EXHIBIT 1: BUDGETED COSTS FOR 2014

-Direct labour$210,000

-Direct material140,000

-Supervision51,500

General manager's salary105,000

-Supplies42,000

-Shipping130,000

-Power13,500

-Rent (need toseparate manufacturing and administration part54,000

-Light and heat18,000

-Depreciation on machinery60,000

-Insurance on machinery6,000

-Repairs6,500

-Selling expenses70,000

Administrative expenses33,500

EXHIBIT 2: JOB COST SHEET

Treasure Trophy Company

Customer:Royal Golf ClubDate:April 6, 2014

Box 11258

Carstairs, AlbertaJob Order No.:35

Order No.3515No. of Units:80

Department

Material

Cost

Hours

Labour

Rate

Labour

Cost

Overhead

Applied

Total

Forming

$301.00

10.0

$14.00

$140.00

Finishing

--

15.0

21.00

315.00

Assembly

--

10.0

17.50

175.00

Total

$301.00

35.0

--

$630.00

1 Includes costs for shipping finished goods to customers only.

67

Page 49B14B012

EXHIBIT 3: ANNUAL COST ASSIGNMENT AND ALLOCATION WORKSHEET

TotalFormingFinishingAssembly

Direct Costs

Direct labour

$ 210,000___________________________

Direct material140,000___________________________

Total direct costs350,000___________________________

Factory Overhead Costs

Supervision

51,500___________________________

Supplies42,000___________________________

Power13,500___________________________

Rent36,000___________________________

Light and heat12,000___________________________

Depreciation, machinery60,000___________________________

Insurance, machinery6,000___________________________

Repairs6,500___________________________

Total factory overhead costs227,500___________________________

Administrative Costs

General manager's salary

105,000___________________________

Shipping30,000___________________________

Rent18,000___________________________

Light and heat6,000___________________________

Selling expenses70,000___________________________

Administrative expenses33,500___________________________

Total administrative expenses262,500___________________________

Overhead Application Rates Factory overhead application rate (FOH expenses Direct labour)

Total overhead application rate (Total expenses Direct labourTREASURE TROPHY COMPANY

Bob Morden, Treasure Trophy Company's new general manager, was about to set the selling prices for an order from the Royal Golf Club. The club had requested quotes before deciding on their purchase. Morden wondered what his own company's (i.e., the manufacturer's) costs were for filling the order so that he could provide a competitive quote on the order.

TreasureTrophyCompany(Treasure)manufacturedtrophiesforallkindsofsports,businessesand celebratory events. All trophies were made to order, sometimes for retail stores and sometimes directly for the organizers of the events. Several trophy manufacturers competed for this business, and since their capabilities were about the same, prices were set with reference to a fairly narrow competitive range. Treasure used a job order system of cost accumulation. The company did not use a standard cost system since its products were all customized.

The manufacturing process was divided into three departments: forming, finishing and assembly. The raw materials were machined to make up finished parts in the forming department. In the finishing department, these parts were sanded, polished, lacquered or subjected to whatever other finishing operations the job required. Any engraving( khc) was done in the finishing department. The assembly operation involved joining parts together to form the trophy, which most commonly meant gluing. Decals might also be glued onto trophies in the finishing department, particularly in the case of less expensive trophies that had little or no engraving. The company's budgeted costs for the year 2014 are shown in Exhibit 1.

A single supervisor oversawallthreedepartments.Hisresponsibilitiesincludedschedulingorders, ensuring that schedules were met, and verifying that trophies were produced to specifications.

The costs shown for shipping did not include any allocation of rent or light and heat. The entire factory building was rented. It had a floor area of 15,000 square feet. The forming department contained 4,000 square feet; the finishing and assembly departments each occupied 3,000 square feet, and the remainder of the building was used for offices, material storage, and shipping and receiving.

The forming department had two machines, each rated at 15 horsepower, and the finishing department had two 10-horsepower machines. All work in the assembly department was done by hand. The machines in the forming department had originally cost $360,000, and the ones in the finishing department had cost

$240,000. All machinery was depreciated over 10 years using the straight-line method with no estimated residual value. Insurance expense was calculated based on the historical cost of the machines.

The best estimate for repairs expenses was based on the proportionate horsepower of the machines. No supplies were required for the forming department since all the material used was considered a direct material cost. Supplies expenses were roughly equal for the finishing and assembly departments.

A job cost sheet was prepared by the supervisor for every order processed by the company. Exhibit 2 contains an incomplete job cost sheet for Job Order No. 35, which required 80 golfing trophies.

The budgeted direct labour cost of $210,000 was made up of $56,000 for the forming department, $84,000 forthefinishingdepartment,and$70,000fortheassemblydepartment.Exhibit3containsacost assignment and allocation worksheet, which had recently been designed by the supervisor.

Morden sat down to set a price for the Royal Golf Club order. To begin with, he wondered what Treasure's costs were for filling the order. As well, he was concerned about what factors should be taken into account in the pricing process and what price should be quoted on the order.

EXHIBIT 1: BUDGETED COSTS FOR 2014

-Direct labour$210,000

-Direct material140,000

-Supervision51,500

General manager's salary105,000

-Supplies42,000

-Shipping130,000

-Power13,500

-Rent (need toseparate manufacturing and administration part54,000

-Light and heat18,000

-Depreciation on machinery60,000

-Insurance on machinery6,000

-Repairs6,500

-Selling expenses70,000

Administrative expenses33,500

EXHIBIT 2: JOB COST SHEET

Treasure Trophy Company

Customer:Royal Golf ClubDate:April 6, 2014

Box 11258

Carstairs, AlbertaJob Order No.:35

Order No.3515No. of Units:80

Department

Material

Cost

Hours

Labour

Rate

Labour

Cost

Overhead

Applied

Total

Forming

$301.00

10.0

$14.00

$140.00

Finishing

--

15.0

21.00

315.00

Assembly

--

10.0

17.50

175.00

Total

$301.00

35.0

--

$630.00

1 Includes costs for shipping finished goods to customers only.

67

Page 49B14B012

EXHIBIT 3: ANNUAL COST ASSIGNMENT AND ALLOCATION WORKSHEET

TotalFormingFinishingAssembly

Direct Costs

Direct labour

$ 210,000___________________________

Direct material140,000___________________________

Total direct costs350,000___________________________

Factory Overhead Costs

Supervision

51,500___________________________

Supplies42,000___________________________

Power13,500___________________________

Rent36,000___________________________

Light and heat12,000___________________________

Depreciation, machinery60,000___________________________

Insurance, machinery6,000___________________________

Repairs6,500___________________________

Total factory overhead costs227,500___________________________

Administrative Costs

General manager's salary

105,000___________________________

Shipping30,000___________________________

Rent18,000___________________________

Light and heat6,000___________________________

Selling expenses70,000___________________________

Administrative expenses33,500___________________________

Total administrative expenses262,500___________________________

Overhead Application Rates Factory overhead application rate (FOH expenses Direct labour)

Total overhead application rate (Total expenses Direct labour