service industry time period used to compute indirect cost rate 269159

Service industry, time period used to compute indirect cost rates. Printers, Inc. produces annual reports and marketing materials for large companies. There are three categories of costs in its normal job costing system: direct materials, direct labor, and overhead (both variable and fixed), allocated on the basis of direct labor costs. Jill Liu, the controller, is concerned that an increasing number of clients are waiting until the last minute to send in their final orders, causing congestion and an increase in the variable manufacturing overhead rate because of higher overtime and facility and machine maintenance. This spike is during the ?ocrazy?? months of January, February, and March, when many companies are rushing to get out their annual reports and marketing materials. Liu obtains the following budgeted data for 2008:

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11f you want to use Excel to solve this exercise, go to the Excel Lab at www.prenhall.com/horngren/oost13e and download the template for Exercise 4 22.

1. Consider Job 332, an order for 100,000 sales catalogs for the local mall. Actual direct material costs for this job are $10,000 and actual labor costs are $6,000. Calculate the cost of Job 332 (a) if it is completed in January—March 2008 and if the budgeted overhead rate for that quarter is used to allocate overhead costs, (b) if it is done in July—September 2008 and if the budgeted overhead rate for that quarter is used to allocate overhead costs, and (c) if the average budgeted overhead rate for the year 2008 is used to allocate overhead costs.

2. To cost each job, Printers, Inc. currently uses the budgeted variable overhead rate for the quarter in which the job is completed and a budgeted fixed overhead rate based on budgeted annual fixed overhead costs and budgeted annual direct labor costs. Calculate the cost of Job 332 using this method if it is done in (a) January—March 2008 and (b) July—September 2008.

3. Printers, Inc., prices each job at 125% of costs. Which method of costing jobs for pricing purposes would you recommend? Why? Explainbriefly.