Problem
Suppose that back in the 1970s, Steve was asked to build speakers for two friends. The first friend, Jan, needed a speaker for her band. The second friend, Ed, needed a speaker built into the back of his hatchback automobile. Steve figured the following cost for each
|
Jan's Job
|
Ed's Job
|
|
Materials
|
$50
|
$75
|
|
Labor hours
|
10
|
20
|
Steve knew that Jan's job would be easier, since he has experience in building the type of speaker she needed. Her job would not require any special equipment or specialized fitting. Ed's job, on the other hand, required specialized design and precise fitting. Steve thought he might need to build a mock-up of the speaker first, to fit it into the space. In addition, he might have to add to his tool collection to complete the job. Normally, Steve figured a wage rate of $6 per hour and charged 20% of labor and materials as an overhead rate.
1. Prepare job-order cost sheet for the two jobs, showing total cost.
2. Which cost do you think is more likely to be accurate? How might Steve build in some of the uncertainty of Ed's job into a budgeted cost?