RIRA Company makes attachments, such as backhoes and grader and bulldozer blades
ID: 2576824 • Letter: R
Question
RIRA Company makes attachments, such as backhoes and grader and bulldozer blades for construction equipment. The company uses a job order cost system. Management is concerned about cost performance and evaluates the job cost sheets to learn more about the cost effectiveness of the operations. To facilitate a comparison, the cost sheet for Job 206 (50 backhoe buckets completed in October) was compared with Job 228, which was for 75 backhoe buckets completed in December. The two job cost sheets follow: Job 206 Item: 50 backhoe buckets Direct Materials Quantity 105 630 Direct Materials Price Materials: Amount $126,000 4410 130410 Steel (tons Steel components (pieces) $1,200 Total materials Direct Labor Hours 400 550 180 1,130 Direct Labor Rate $22.50 27.00 18.00 Direct labor: Foundry Welding Shipping Total direct labor Amount 9,000 14850 3,240 27,090 Direct Total Labor Cost Factory Overhead Rate Amount Factory overhead (200% of direct labor dollars) Total cost Total units Unit cost (rounded) $27,090 54,180 211,680 50 $4,233.60 200%Explanation / Answer
Answer 1.
Cost has increase due to -
Steel consumed per unit of output has increased, hence the per unit cost has increase.
Labour hours per unit of output has increase hence the per unit cost has increase.
Answer 2
Due to change in supplier of steel, just to take benefit of Lower steel prices, procurememnt source has changes.
With this change and due to lower qulity material consumption per unit has increase. Also labour time per unit of output is spent more with this new raw material.
Due to these two factors, cost per unit has increased.
Backhoe Buckets 50 75 Job 206 Job 228 Material Qty Rate Qty per backhoe Qty Rate Qty per backhoe Steel 105 1200 2.1 126000 195 1100 2.6 214500 Steel Components 630 7 12.6 4410 945 7 12.6 6615 Labour Foundry 400 22.5 8 9000 750 22.5 10 16875 Welding 550 27 11 14850 1050 27 14 28350 Shipping 180 18 3.6 3240 375 18 5 6750 Factory O/H 54180 103950 (200% of Direct Labour) Total Cost 211680 377040 Total Units 50 75 Per Unit Cost 4233.6 5027.2Related Questions
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