JOB COSTING

Exercises

4-1

Exercise 4-16
Job costing, process costing In each of the following
situations, determine whether job costing or process
costing would be more appropriate.
a)
b)
c)
d)
e)
f)
g)
h)

A CPA firm
An oil refinery
A custom furniture
manufacturer
A tire manufacturer
A handicraft studio
A pharmaceutical company
An advertising agency
An pet shop

Job costing
Process costing
Job costing
Process costing
Job costing
Process costing
Job costing
Job costing
4-2

Job costing, process costing

i)
j)
k)
l)
m)
n)
o)
p)
q)
r)
s)
t)
u)

A flour mill
A paint manufacturer
A medical care facility
A landscaping company
A cola-drink-concentrate producer
A movie studio
A law firm
A commercial aircraft manufacturer
A management consulting firm
A breakfast-cereal company
A catering service
A paper mill
An auto repair shop

Process costing
Process costing
Job costing
Job costing
Process costing
Job costing
Job costing
Job costing
Job costing
Process costing
Job costing
Process costing
Job costing

4-3

Exercise 4-18
Job costing, normal and actual costing.
Anderson Construction assembles residential
houses. It uses a job-costing system with two
direct-cost categories (direct materials and direct
labor) and one indirect-cost pool (assembly
support).
Direct labor-hours is the allocation base for
assembly support costs. In December 2007,
Anderson budgets 2008 assembly-support costs
to be $8,000,000 and 2008 direct labor hours to
be 160,000.
4-4

At the end of 2008, Anderson is comparing the costs of

several jobs that were started and completed in 2008.

Direct materials and direct labor are paid for on a contract

basis. The costs of each are known when direct materials are
used or when direct labor-hours are worked. The 2008 actual
assembly-support costs were $6,888,000, and the actual
direct labor-hours were 164,000.

4-5

1. Compute the (a) budgeted indirect-cost rate and

(b) actual indirect-cost rate. Why do they differ?
These rates differ
because both the
Budgeted
Cost Rate
numeratorIndirect
and the
denominator in the
two calculations are
differentone based
on budgeted
numbers and the
other based on
actual numbers.
Actual Indirect Cost Rate

Budgeted Indirect
Costs
Budgeted Direct
Labor Hours

$8,000,000
160,000 hours

= $50 per dl hour

Actual Indirect
Costs
Actual Direct
Labor Hours

$6,888,000
164,000 hours

= $42 per dl hour

4-6

2. What are the job costs of the Laguna Model and

the Mission Model using (a) normal costing and
(b) actual costing?

4-7

3. Why might Anderson Construction prefer normal

costing over actual costing?
Normal costing enables Anderson to report a job cost
as soon as the job is completed, assuming that both the
direct materials and direct labor costs are known at the
time of use. Once the 900 direct labor-hours are known
for the Laguna Model (June 2008), Anderson can
compute the $187,726 cost figure using normal costing.
Anderson can use this information to manage the costs
of the Laguna Model job as well as to bid on similar jobs
later in the year. In contrast, Anderson has to wait until
the December 2008 year-end to compute the $180,526
cost of the Laguna Model using actual costing.

4-8