Question: Bayer Company manufactures wooden bed frames consisting of headboards footboards

Bayer Company manufactures wooden bed frames, consisting of headboards, footboards, and rails. The company’s accountant is preparing a pilot study of one job to determine how costs for the job would be handled in a material flow cost accounting system. For now, the accountant is focusing only on the flow of physical materials, excluding energy.
Variable costs traced and allocated to job 483, a batch of 10 frames, consist of the following:
Wood ........................ $2,350
Other direct materials (stain, fittings, etc.) ........... 180
Direct labor ...................... 1,500
Variable manufacturing overhead (10% × direct labor cost) ... 150

The preceding costs include both normal and abnormal spoilage. Normal spoilage occurred when one of the wood panels split during planning. Direct costs for the panel to the point of spoilage consisted of $50 for wood and $40 for direct labor. The broken panel was scrapped. Abnormal spoilage occurred when a forklift malfunctioned and damaged wood costing $400 that was purchased specially for the job. The spoilage occurred before any processing. The damaged wood was sold for $25.
The company’s manufacturing process includes planning and cutting the wood, which produces scrap. For job 483, approximately 15% of the total volume of the wood processed became scrap.
This amount of scrap is considered normal. The proceeds from sale of scrap are insignificant. Other direct materials and variable manufacturing overhead include both positive product and waste (i.e., negative product). The accountant estimates that 50% of other direct materials and 100% of variable overhead costs are waste.

A. Calculate the total variable cost that should be assigned to job 483, assuming the company uses a traditional job costing system (see Chapter 5).
B. Calculate the total variable cost that should be classified as product costs for job 483 in the company’s material flow cost accounting system.
C. Provide a possible explanation for the higher proportion of waste in variable manufacturing overhead costs compared to other direct materials.
D. Suppose the managers of Bayer Company are evaluating the profitability of the customer for job 483. Should the managers use total variable costs from part (A) or part (B) for this analysis? Explain your reasoning.
E. In what ways might the use of material flow job cost accounting lead to changes in behavior at Bayer Company?

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  • CreatedJanuary 26, 2015
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