EXERCISE 1-10. Cost Terms [LO 5] Identify each of the following statements with
ID: 2667327 • Letter: E
Question
EXERCISE 1-10. Cost Terms [LO 5] Identify each of the following statements with fixed costsor variable costs by writing “fixed” or “variable” in the space provided.
______ a. A cost that varies in total with changes in the activity level.
______ b. A cost that varies on a per-unit basis with changes in the activity level.
______ c. A cost that remains fixed per unit with changes in the activity level.
______ d. A cost that remains fixed in total with changes in the activity level.
PROBLEM 2-10. 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.
Redfern wedding $ 400 25
Material Labor hours
Redfern Wedding 400 25
Miller wedding 800 40
Walker wedding 500 20
DeSilva wedding 1700 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
1)
Cost Terms [LO 5] Identify each of the following statements with fixed costs
or variable costs by writing “fixed” or “variable” in the space provided.
Variable --a . A cost that varies in total with changes in the activity level.
Fixed --b. A cost that varies on a per-unit basis with changes in the activity level.
Variable -- c. A cost that remains fixed per unit with changes in the activity level.
Fixed -- d. A cost that remains fixed in total with changes in the activity level.
2)
a)
Here over head cost is for annum:
cost over head cost
Linens
1200
Silver services
1000
Glass plates and cups
1400
Cake decorating tools and accessories
600
Insurance
1400
5600
If substitute in the above formula = 5600 / 1000 hours
Rate = 5.6
Cost Sheet
Red fern
Miller
Walker
De Silva
Ester
Total
Direct materials
400
800
500
1,700
600
4,000
Direct labor
750
1,200
600
2,700
900
6,150
Labor hours
25
40
20
90
30
205
Over head cost based on labor cost at 5.6
140
224
112
504
168
1,148
Total cost
1,287
2,544
1,288
5,638
1,685
12,237
Less : Billing price 120% on total cost
1,544
3,053
1,546
6,766
2,022
14,930
Net Income
257
509
258
1,128
337
2,693
b)
Income for the month of June:
Revenue
14,930
less:
cost of goods sold
12,237
operating income
2,693
Less: operating Expenditure
Utilities
100
Insurance
117
Depreciation
420
Net Income
2056
cost over head cost
Linens
1200
Silver services
1000
Glass plates and cups
1400
Cake decorating tools and accessories
600
Insurance
1400
5600
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