Madera and Belaval, architects, have been using a simplified costing system in which all professional labor costs are included in a single direct cost category, professional labor; and all overhead costs are included in a single indirect cost category, professional support, and allocated to jobs by using professional labor hours as the allocation base. Consider two clients:Don Pepes’s Restaurant, which required 27 hours of design work for a new addition, and Mr. Carlos Pástor- C.P.A. , who required plans for a new ultramodern home that took 39 hours to draw. The firm has two partners, who each earn a salary of $140,000 a year, and four associates, who each earn $65,000 per year. Each professional has 1,450 billable hours per year. The professional support is $1,090,000, which consists of $710,000 of design support and $360,000 of staff support. Don Pepe’s job required four hours of partner time and 22 hours of associate time. Mr. Carlos Pástor, C.P.A. job required 20 hours of partner time and 20 hours of associate time. Required: Using the example of page 468 of the textbook do the following: 1. Prepare job cost sheets for Don Pepe’s Restaurant and Mr. Carlos Pástor, C.P,A, , using a simplified costing system with one direct and one indirect cost pool. 2. Prepare job cost sheets for the two clients, using an activity-based costing system with two direct cost categories—partner labor and associate labor—and two indirect cost categories—design support and staff support. Use professional labor dollars as the cost allocation base for design support and professional labor hours for staff support. (Round rates to two decimal places.) 3. Determine the amount by which each job was under- or - overcosted, using the simplified costing system.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Madera and Belaval, architects, have been using a simplified costing
system in which all professional labor costs are included in a single direct
cost category, professional labor; and all overhead costs are included in a
single indirect cost category, professional support, and allocated to jobs
by using professional labor hours as the allocation base. Consider two
clients:Don Pepes’s Restaurant, which required 27 hours of design work for a
new addition, and Mr. Carlos Pástor- C.P.A. , who required plans for a new ultramodern
home that took 39 hours to draw. The firm has two partners, who each
earn a salary of $140,000 a year, and four associates, who each earn
$65,000 per year. Each professional has 1,450 billable hours per year. The
professional support is $1,090,000, which consists of $710,000 of design
support and $360,000 of staff support. Don Pepe’s job required four hours of
partner time and 22 hours of associate time. Mr. Carlos Pástor, C.P.A. job required 20 hours
of partner time and 20 hours of associate time.
Required: Using the example of page 468 of the textbook do the following:
1. Prepare
simplified costing system with one direct and one indirect cost pool.
2. Prepare job cost sheets for the two clients, using an activity-based
costing system with two direct cost categories—partner labor and
associate labor—and two indirect cost categories—design support and
staff support. Use professional labor dollars as the cost allocation base
for design support and professional labor hours for staff support.
(Round rates to two decimal places.)
3. Determine the amount by which each job was under- or - overcosted,
using the simplified costing system.
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