Job Costing Project

In this assignment you will be required to complete tasks related to job costing. Download the document, complete the required information, save the document, and submit the assignment in Blackboard.

Custom Fabric Ventures is a small company that produces fabric-based wardrobe accessories (such as, handbags, scarves, and headbands) and home accessories (such as placemats, pillows, and window treatments). The company keeps a limited number of popular items in stock, but primarily produces custom orders. Customers are able to choose from a wide selection of styles, sizes, and fabrics for each type of product. Most of the company’s customers are small boutiques, home décor shops, and home-decorators who serve clientele with discerning tastes. As a result, customers expect high-quality products.

The sales staff of Custom Fabric Ventures has just received the following order:

Custom Fabric Ventures

Customer Order Form

Customer: Katie’s Boutique

Order Date: 10/2/2012

Order Due Date: 10/15/2012

Description Model number Quantity Unit Sales price Total
Black & white handbag BW1493 7 $75 $525
Due to its popularity, the Black and White Handbag (BW14293) is normally a stock item. However, the handbag is currently out of stock. Rather than producing only enough units to fill Katie’s order, management would like to produce a job (Job 114) that is large enough to fill Katie’s order and replenish stock. The fabric used for this job can be stacked four layers deep for cutting, while still maintaining the quality and precision of the cut. Therefore, the company is able to realize some economies of scale by producing the handbags in multiples of 4. Management would like to produce enough units in this job to have a minimum of 30 and a maximum of 35 handbags left in stock after Katie’s order has been filled.

Your primary task is to determine the cost of producing Job 114 so that you can calculate the gross profit on the sale to Katie’s Boutique. As part of this process, you will be required to schedule production, purchase any raw materials that are not currently in stock, requisition materials for the job, and complete the job cost record.

The following step-by-step requirements will guide you through the entire job costing process. The documents you will encounter in this case are normally completed electronically rather than manually. In addition, these documents often interface with each other electronically in order to transfer data in real-time, eliminate tedious calculations, and prevent errors. However, the underlying process is the same regardless of whether the company uses electronic or manual documents.

Req. 1: Before the year began, Custom Fabric Ventures estimated the following costs for the year:

Type of Cost Estimated total cost for the year
Selling and Administrative salaries and expenses $210,000
Direct Labor (Estimated 40,000 DL hours @ average wage rate of $12 per hour) 480,000
Indirect plant labor 40,000
Plant utilities 50,000
Purchases of direct materials 1,400,000
Lease and property taxes on the plant 120,000
Marketing expenses 30,000
Depreciation on production equipment (Equipment originally costing $700,000 three year ago is being depreciated over a 5 year useful life using straight-line depreciation. No salvage value is expected.) 140,000
Indirect materials to be used in the plant
20,000

Calculate the company’s predetermined manufacturing overhead rate, assuming the company uses direct labor hours as its allocation base:

Manufacturing OH Rate =$9.25

Req.2: To realize maximum efficiency and meet management’s desired level of stock, how many Black & White handbags should be produced in Job 114?40

Req. 3: The production engineers have given you the materials requirements for each Black & White handbag. Assume that no efficiencies in materials can be achieved by producing more than one unit per batch. Complete the Bill of Materials for Job #114 found below. Be sure to include the quantity being produced in the Job as well as the total quantity needed for each direct material.