The Ferndale Furniture Company produces custom furniture for walk-in customers. Products include coffee tables, shelving units, mirrors, and hutches and can be constructed with either pine or oak. Custom kitchen cabinetry and installation will also be considered during the slower winter season. The company is owned and operated by Ken McMann, who has one full-time employee working for him. Ken has worked in this industry for many years and has just started the company. Currently, for customer pricing inquiries, Ken provides a quote based on his best estimate and years of experience in the business and applies a 35% markup on cost.

Ken’s son Owen has returned home for the summer after completing his first semester of an accounting program. Owen described to Ken the benefits of a job-order costing system to track costs and as a basis for quoting sales prices to prospective customers. Ken believes he could use this cost accounting system in his new business and sets aside a few hours to collect and generate the following estimated data:

Monthly Estimates:

Direct materials – kiln dried pine	$24/board foot
Direct materials – kiln dried oak	$38/board foot
Direct labour	$12.20/hour
Direct labour hours	70
Depreciation – production equipment	$250
Utilities	$380.90
Rent – production space	$550
Rent – sales and administrative space	$410
Salaries – sales and administrative	$640

Ken has received two enquiries: one is for a pine shelving unit and the second is for a kitchen hutch made with oak. Ken has generated the following estimates:

	Job 1 – Shelving Unit	Job 2 – Kitchen Hutch
Direct materials	10 board feet – Pine	14 board feet – Oak
Direct labour hours	25	45

At the end of the month, Ken collected the following actual data after completing Jobs 1 and 2.

End-of-month actual data:

Depreciation – production equipment	$235
Utilities	425
Rent – production space	580
Rent – sales and administrative space	410
Salaries – sales and administrative	660
Raw materials inventory – beginning	300
Raw materials inventory – ending	100

Required:

1. Assume it is the beginning of the month, using the estimates and a job-order costing system, what price would you recommend Ken quote for each of the above two jobs to ensure profitability in the long term?
2. Assume it is the end of the month, determine the amount of under- or over-applied overhead and recommend to Ken how this amount should be accounted for.
3. Prepare a schedule of cost of goods manufactured for the month - these were the only two jobs started and sold (zero beginning and ending work-in-process inventory). Assume that actual materials used and the labour rate/hours are the same as estimated.