1. Assume that Sprinturf uses a job order costing system. For the three basic cost categories of direct materials, direct labor, and overhead, identify at least two typical costs that would fall into each category for Sprinturf.
2. Assume a local high school expresses an interest in purchasing a synthetic field installation from Sprinturf. The high school’s budget will allow them to pay no more than $600,000 for the field. How can Sprinturf use job cost information to assess whether to pursue this opportunity?
Who Knows
1. In a job order costing system, costs are categorized into three main categories: direct materials, direct labor, and overhead. For Sprinturf, typical costs in each category could include:
a) Direct materials:
- Synthetic turf rolls: This includes the cost of the actual synthetic turf material used in the field installation.
- Filling material: The cost of materials used to fill the turf, such as rubber granules or sand.
b) Direct labor:
- Installation labor: The cost of labor required to install the synthetic field, including wages of the workers involved.
- Supervisory labor: The cost of labor for supervisors or foremen overseeing the installation process.
c) Overhead:
- Equipment depreciation: The cost allocated to the synthetic field project for the wear and tear on equipment used during the installation.
- Utilities: The cost of utilities (such as electricity or water) used in the field installation process.
These are just example costs that could fall into each category, and the actual costs for Sprinturf may vary based on their specific processes and operations.
2. To assess whether to pursue the opportunity of selling a synthetic field installation to the local high school within their $600,000 budget, Sprinturf can use job cost information in the following ways:
a) Estimate the total costs: Sprinturf can use their job cost information from previous similar projects to estimate the total direct materials, direct labor, and overhead costs for the proposed field installation. By adding these costs, they can determine the estimated total cost of the project.
b) Compare estimated costs to the budget: If the estimated cost of the project is significantly higher than the high school's budget of $600,000, it may be financially unfeasible for Sprinturf to pursue the opportunity. They can use the job cost information to assess whether they can meet the budget requirements.
c) Identify potential cost savings: If the estimated cost falls within the budget, Sprinturf can analyze the job cost information to identify potential areas for cost savings. For example, they can compare labor costs from previous similar projects and find ways to optimize labor utilization or reduce material costs without compromising quality.
d) Evaluate profitability: By comparing the estimated costs with the projected revenue from the high school's purchase, Sprinturf can assess the potential profitability of the project. If the estimated costs are too high and the profit margin is not sufficient, they may decide not to pursue the opportunity.
Overall, job cost information allows Sprinturf to evaluate whether they can meet the high school's budget requirements, analyze cost-saving opportunities, and assess the profitability of the project to make an informed decision on whether to pursue the opportunity.