Accounting for a Job-Order Cost System [LO 3, 6, 7, 9] Bob and Beth Ford retired

Question

Accounting for a Job-Order Cost System [LO 3, 6, 7, 9]
Bob and Beth Ford retired from the food services industry and began catering wedding receptions on a limited basis. The major costs in setting up their business included: linens, $1,200; two complete silver services, $1,000; glass plates and cups, $1,400; and cake-decorating tools and accessories, $600. It is expected that all of these items will last 10 years with no salvage value. Bob and Beth do all their food preparation in their apartment and have found that, in an average month, their utility bill is $100 higher than when they did not cater. All baking and cooking supplies are treated as “direct materials,” and the only other cost incurred is liability insurance at $1,400 per year. All direct materials are purchased at a local grocery for cash, and Bob and Beth pay themselves an hourly wage of $30 per hour. During the month of June, Bob and Beth catered five weddings.

Materials Labor Hours
Redfern wedding $ 400 25
Miller wedding 800 40
Walker wedding 500 20
DeSilva wedding 1,700 90
Estes wedding 600 30

The overhead allocation base is labor hours with an estimated 1,000 hours per year, and billings are at 120 percent of job cost. Overhead allocations and markups are rounded to the nearest dollar.

Required
a. Prepare job cost sheets for each of the five catering jobs.
b. Calculate income for the month of June.

Explanation / Answer

Overhead rate
Depreciation   (1,200+1,000+1,400+600)   4,200
Utility bills       ($100 x 12)                       1,200
Insurance                                                1,400
                                                            ---------
                                                              6,800
                                                           =======
Labor hours per year                                1,000
Overhead predetermined rate   6,800 / 1000 = $6.80

a. Prepare job cost sheets for each of the five catering jobs

                               Job Cost Sheet
--------------------------------------------------------------------------
Job No. ------------------            Staring date ---------------
                                               Ending Date ---------------
Customer : Redfern                 Labor hours : 25 hours
_______________________________________________
     Materials              Labor           Overhead
_______________________________________________
       $400                 $750              $170
_______________________________________________
      $400                  $750              $170
_______________________________________________
Cost Summary
Materials        $400
Labor             $750
Overheads     $170
                   ----------
Total           $1,320
                  =======

b. Calculate income for the month of June

                     Redfern      Miller     Walker DeSilve   Estes   Total
Total Cost      $1,320      $2,272   $1,236    $5,012  $1,704 $11,544
Profit 20%         $264         $454      $247    $1,002     $341    $2,308
                   -----------------------------------------------------------------
Sales             $1584        $2,726    $1,483   $6,014   $2,045 $13,852
                   ===============================================

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