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Job order costing

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I am having difficulty with the following problem. I have tried this problem on my own, but I having trouble identifying the traceable costs and the cost driver used. It is broken up into 4 parts.

Question:

KLP provides consulting services and uses a job-order system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by KLP, but not identifiable with specific clients, are chraged to jobs using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup.

KLP anticipateds the following costs for the upcoming year:

PERCENTAGE OF COST
DIRECTLY TRACEABLE
TO CLIENTS
COST
Professional staff salaries $5,000,000 80%
Administrative support staff 600,000 50
Travel 200,000 80
Other Operating costs 200,000 20

KLP'S partners desire to make a $480,000 profit for the firm and plan to add a percentage markup on cost to achieve that figure.

On May 14, KLP completed work on a project for Lawson Manufacturing. The following costs were incurred: professional salaries, $68,000; administrative support staff, $8,900; travel, $10,500; and other operating costs, $2,600.

Required:
A) Determine KLP'S total traceable costs for the upcoming year and the firms total anticipated overhead.

B) Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs.

C) What percentage of cost will KLP add to each job to achieve its profit target?

D) Determine the total cost of the Lawson Manufacturing project. How much would Lawson be billed for services performed?

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Solution Preview

A) Determine KLP'S total traceable costs for the upcoming year and the firms total anticipated overhead.

The traceable costs are those which are directly traceable to clients. The traceable costs are
80% of professional staff salaries = 5,000,0000X80%=4,000,000
50% of administrative support staff = 600,000X50% = 300,000
80% of Travel = 200,000X80% = 160,000
20% of Other operating cost = 200,000X20%=40,000
Total ...

Solution Summary

The solution explains the calculations under job order costing

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SAC has developed revolutionary manufacturing techniques utilizing its new spark plug manufacturing technology to offer special-order spark plugs for the auto racing industry. The company is currently using process costing for its spark plugs but is considering using job order costing for the new specialty spark plugs. How does job order costing differ from process costing? Should SAC use process or job order costing for the specialty spark plugs? Make a recommendation for SAC. Be sure to fully back up your recommendation.

Scenario:
The Sparklin Automotive Company (SAC) has been in business since 1930. It began business in the United States supplying spark plugs to automotive manufacturers (OEM, the original equipment market) and the automotive aftermarket.

SAC has introduced a new spark plug manufacturing process in the United States that produces a higher quality spark plug guaranteed to last 100,000 miles. The introduction of this spark plug has been very successful in the United States.

In addition to these types of projects, your responsibilities include creating and analyzing the monthly performance of each plant and consolidating the results into a set of financial statements footnoted with explanations.

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