Question:
RIRA Company makes attachments, such as backhoes and grader and bulldozer blades, for construction equipment. The company uses a job order cost system. Management is concerned about cost performance and evaluates the job cost sheets to learn more about the cost effectiveness of the operations. To facilitate a comparison, the cost sheet for Job 206 (50 backhoe buckets completed in October) was compared with Job 228, which was for 75 backhoe buckets completed in December. The two job cost sheets follow.
Management is concerned with the increase in unit costs over the months from October to December. To understand what has occurred, management interviewed the purchasing manager and quality manager.
Purchasing Manager: Prices have been holding steady for our raw materials during the first half of the year. I found a new supplier for our bulk steel that was willing to offer a better price than we received in the past. I saw these lower steel prices and jumped at them, knowing that a reduction in steel prices would have a very favorable impact on our costs.
Quality Manager: Something happened around mid- year. All of a sudden, we were experiencing problems with respect to the quality of our steel. As a result, weve been having all sorts of problems on the shop floor in our foundry and welding operation.
1. Analyze the two job cost sheets, and identify why the unit costs have changed for the backhoe buckets. Complete the following schedule to help you in your analysis:
2. How would you interpret what has happened in light of your analysis and theinterviews?
Transcribed Image Text:
Job 206 Item: 50 backhoe buckets Direct Materials Quantity 105 Direct Materials Price Materials: Amount $126,000 4,410 $130,410 Steel (tons) Steel components (pleces) $1,200 630 Total materials Direct Labor Hours 400 550 180 Direct Direct labor: Labor RateAmount 9,000 14,850 3,240 27,090 $22.50 27.00 18.00 Welding Shipping Total direct labor 1,130 Direct Total Labor Cost Factory Rate Amount Factory overhead (200% of direct labor dollars) Total cost Total units Unit cost (rounded) Job 228 S 54,180 211,680 50 4,233.60 $27,090 200% Item: 75 backhoe buckets Direct Materials Quantit Direct Materials Price Amount Materials: Steel (tons) Steel components (pieces 195 945 $1,100 214,500 6,615 221,115 Total materials Direct Labor Hours Direct Labor Rate Amount Direct labor 750 1,050 Foundry Welding Shipping Total direct labor $22.50 27.00 18.00 16,875 28,350 6,750 51,975 375 2,175 Direct Total Labor Cost Factory Overhead Rate Amount Factory overhead (200% of direct labor dollars) Total cost Total units Unit cost $51,975 20096 377,040 Input Quantity per Unit -Job 206 Input Quantity per Unit Job 228 Item Steel Foundry labor Welding labor