Reference no: EM132651423
Questions -
Problem 1 - Content of Financial Statements and Reports
Consider the following cost items:
1. Salaries of players on the Boston Red Sox.
2. Year-end completed goods of Levi Strauss jeans.
3. Executive compensation costs at Home Depot.
4. Advertising costs for Sony.
5. Costs incurred during the period to insure a Ford plant against fire and flood losses.
6. Current year's depreciation on a Carnival Cruise Line ship.
7. The cost of printer ink and paper used during the period by Shutterfly.
8. Assembly-line wage cost incurred at a Kona bicycle plant.
9. Year-end production in process at Lenovo computer manufacturer.
10. The cost of products sold to customers of a Target store.
11. The cost of products sold to distributors of carpet manufacturer Shaw Floors.
Required -
1. Evaluate the costs just cited, and determine whether the associated dollar amounts would be found on the firm's balance sheet, income statement, or schedule of cost-of-goods-manufactured. (Note: In some cases, more than one answer will apply.)
2. What major asset will normally be insignificant for service enterprises and relatively substantial for retailers, wholesalers, and manufacturers? Briefly discuss. 3. Briefly explain the major differences between income statements of service enterprises versus those of retailers, wholesalers, and manufacturers.
Problem 2 - Job-Order Costing in a Con-sulting Firm
JLR Enterprises provides consulting services throughout California and uses a job-order costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by JLR, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead application rate. Clients are billed for directly chargeable costs, over-head, and a markup.
JLR's director of cost management, Brent Dean, anticipates the following costs for the upcoming year:
COST Percentage of Cost Directly Traceable to Clients
Professional staff salaries $2,500,000 80%
Administrative support staff 300,000 60%
Travel 250,000 90%
Photocopying 50,000 90%
Other operating costs 100,000 50%
Total $3,200,000
The firm's partners desire to make a $640,000 profit for the firm and plan to add a percentage markup on total cost to achieve that figure. On March 10, JLR completed work on a project for Martin Manufacturing. The following costs were incurred: professional staff salaries, $41,000; administrative support staff, $2,600; travel, $4,500; photocopying, $500; and other operating costs, $1,400.
Required -
1. Determine JLR's total traceable costs for the upcoming year and the firm's total anticipated overhead.
2. Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs.
3. What percentage of cost will JLR add to each job to achieve its profit target?
4. Determine the total cost of the Martin Manufacturing project. How much would Martin be billed for services performed?
5. Notice that only 50 percent of JLR's other operating cost is directly traceable to specific client projects. Cite several costs that would be included in this category and difficult to trace to clients.
6. Notice that 80 percent of the professional staff cost is directly traceable to specific client projects. Cite several reasons that would explain why this figure isn't 100 percent.