Cost behavior and classification: Factory supervision, Aluminum tubing, Rims,Emblem, Gearbox, Straight-line depreciation on paint machine,Fenders, Inventory clerk’s salary, Inspector’s salary, Handlebars, Metal worker’s wages, Roller chain, Spokes (assuming cost is considered significant), Paint (assuming cost is considered significant)
Please can you give the step to do this problems.
(Comprehensive) Jackson Construction Company uses a job order costing system. In May 2008, Jackson made a $1,650,000 bid to build a pedestrian overpass over the beach highway in Gulfport, Mississippi. Jackson Construction won the bid and assigned #515 to the project. Its completion date was set at December 15, 2008. The following costs were estimated for completion of the overpass: $620,000 for direct material, $335,000 for direct labor, and $201,000 for overhead.
During July, direct material cost assigned to Job #515 was $60,900, and direct labor cost associated with it was $87,520/ The firm uses a predetermined OH rate of 60 percent of direct labor cost. Jackson Construction also worked on several other jobs during July and incurred the following costs:
Direct material (including job #515) $289,650
Direct labor (including job #515) 292,000
Indirect labor 27,900
Administrative salaries and wages 19,800
Depreciation on construction equipment 13,200
Depreciation on office equipment 3,900
Client entertainment (on accounts payable) 5,550
Advertising for firm (paid in cash) 3,300
Indirect material (from supplies inventory) 9,300
Miscellaneous expenses (design related;
to be paid in the following month) 5,100
Accrued utilities (for office, $900; for construction, 3,600
$2,700)
During July, Jackson Construction completed several jobs that had been in process before the beginning of the month. These completed jobs generated $612,000 of revenues for the company. The related job cost sheets showed costs associated with those jobs of $414,500. At the beginning of July, Jackson Construction had Work in Process Inventory of $435,900.
a. Prepare a job order cost sheet for Job #515, including all job details, and post the appropriate cost information for July.
b. Prepare journal entries for the preceding information.
c. Prepare a Cost of Goods Manufactured Schedule for July for Jackson Construction Company.
d. Assuming that the company pays income tax at a 40 percent rate, prepare an income statement for Jackson Construction Company.
From the given list, we can classify the costs into different categories based on their behavior. Cost behavior refers to how a cost changes in relation to changes in the level of activity or volume of output in a business.
1. Variable Costs:
- Aluminum tubing: The cost of aluminum tubing is likely to vary with the level of production. As more tubing is required, the cost will increase proportionally.
- Rims: The cost of rims is also likely to vary with the level of production.
- Emblem: The cost of emblems is likely to vary with production since more production would require more emblems.
- Gearbox: The cost of gearboxes is likely to vary with the level of production. As more gearboxes are needed, the cost will increase proportionally.
- Fenders: The cost of fenders is likely to vary with production since more production would require more fenders.
- Handlebars: The cost of handlebars is likely to vary with the level of production.
- Roller chain: The cost of roller chains is likely to vary with the level of production.
2. Fixed Costs:
- Factory supervision: The cost of factory supervision is a fixed cost. It does not change with the level of production but is incurred regardless of the level of activity.
- Straight-line depreciation on paint machine: Depreciation is the systematic allocation of the cost of an asset over its useful life. Since straight-line depreciation is being applied, the cost is fixed and does not change with the level of production.
- Inventory clerk’s salary: The salary of the inventory clerk is a fixed cost. It does not change with the level of production.
- Inspector’s salary: The inspector’s salary is also a fixed cost. It does not change with the level of production.
- Metal worker’s wages: The wages of metal workers might be classified as a fixed cost if they are a fixed salary. However, if they are hourly wages, they would be considered a variable cost.
3. Mixed Costs:
- Spokes: The cost of spokes is considered significant, but it could be a mixed cost. It may have both a fixed and a variable component. For example, there might be a fixed cost for a minimum quantity of spokes and a variable cost for every additional spoke required.
- Paint: Assuming the cost of paint is considered significant, it could also be a mixed cost. There may be a fixed cost component for a certain quantity of paint and a variable cost component for additional paint required.
It is important to note that the classification of costs may depend on various factors and the specific circumstances of the business.