Chapter 2, Problem 3MAD

a.

To determine

Identify the reason for which the cost per plaque is increased from $60 to $80.

Explanation of Solution

Job order costing

Job order cost system provides a separate record of each particular quantity of product that passes through the factory. Each quantity that is manufactured in the business is known as job. Job order costing is used when the products produced are significantly different from each other.

Identify the difference between the expected number of backboards and brass plates, and the number of actual plaques shipped for Job 101.

Materials
Walnut plaques:
Actual units used	40 units
Expected units needed to produce 40 plaques	40 units
Difference	0 units
Brass plates:
Actual units used	40 units
Expected units needed to produce 40 plaques	40 units
Difference	0 units

Table (1)

Identify the difference between the expected labor hours required to produce 40 plaques, and actual labors used for engraving and assembling for Job 101.

Labor
Engraving:
Actual labor hours used	20 hours
Expected labor hours to produce 40 plaques       $\left(\frac{\text{40 units}\times \text{30 minutes per unit}}{60\text{ minutes per hour}}\right)$	20 hours
Difference	0 hours
Assembly:
Actual labor hours used	10 hours
Expected labor hours to produce 40 plaques       $\left(\frac{\text{40 units}\times \text{15 minutes per unit}}{60\text{ minutes per hour}}\right)$	10 hours
Difference	0 hours

Table (2)

Identify the difference between the expected number of backboards and brass plates, and the number of actual plaques shipped for Job 105.

Materials
Walnut plaques:
Actual units used	34 units
Expected units needed to produce 30 plaques	30 units
Difference	4 units
Brass plates:
Actual units used	34 units
Expected units needed to produce 30 plaques	30 units
Difference	4 units

Table (3)

Identify the difference between the expected labor hours required to produce 30 plaques, and actual labors used for engraving and assembling for Job 105.

Labor
Engraving:
Actual labor hours used	17 hours
Expected labor hours to produce 40 plaques       $\left(\frac{\text{30 units}\times \text{30 minutes per unit}}{60\text{ minutes per hour}}\right)$	15 hours
Difference	2 hours
Assembly:
Actual labor hours used	8.5 hours
Expected labor hours to produce 40 plaques       $\left(\frac{\text{30 units}\times \text{15 minutes per unit}}{60\text{ minutes per hour}}\right)$	7.5 hours
Difference	1.0 hours

Table (4)

Interpretation:

Cost per unit of material or labor is same for both the job, hence total cost did not increase because of the cost per unit of material or labor. Cost per plaque is $60 for Job 101 and $68 for Job 105. This cost per plaque is increased in Job 105, because of the usage of more labor and materials than that of Job 101. From the above calculation, it is identified that expected number of backboards and brass plates, and the number of actual plaques shipped for Job 101 are same, whereas Job 105 required 4 more backboards and brass plates than the expected number of units.

For Job 105, the expected labor hours (engraving and assembly) to produce 30 plaques are $\left(\text{15+7}\text{.5}\right)$22.5 hours, whereas the actual labor hours spend is $\left(\text{17+8}\text{.5}\right)$25.5 hours. As a result of this increased labor hours, the unit cost of Job 105 is increased.

b.

To determine

Recommend some improvements for Incorporation RT.

Explanation of Solution

Job 105 requires producing 30 good quality plaques, for that it uses 34 engraved brass plates. It is observed that engraver is not spelling the names correctly; this is because of supplying of small typewritten fonts to the engraver. Hence, the names should be supplied to the engravers in large typewritten fonts, so that they can print the name without any mistakes.

The assembly operation also needs some improvement, as it took 34 assembly operations in order to assemble 30 plaques properly. It may be that the plates are assembled off-register (crooked) to the backboard. This could be improved by using a fixture to properly align the plate to the backboard. Alternatively, it’s possible that the improper-engraved plaques were assembled to the backboards and needed to be disassembled, re-engraved, and reassembled to new backboards.