Question

Glasgow Company is a manufacturer of chemical products and minerals/vitamin supplements. The company was founded in 1999. and is capable of performing all manufacturing, marketing, and sales functions. Its products are sold in United States and some other countries, including Japan, Korea and New Zealand.

Glasgow supplies its products either in pwerder form, or in the form of tablets. Upon receiving an order, the company creates a job cost sheet to accumulate costs from different sources such as materials, labor, and overheads. A material requisistion is created to place an order for material as per the job specification. A chemist usually monitors the specific quantities of material that is needed. A material requisition and the purchase order would be the source documents for extracting information about the direct and indirect material being used for each job. The production manager creates a time sheet for different production departments and this would be the source documents to get the labor cost. The overhead costs are charged using direct manufacturing labor as the cost allocation base. Since manufacturing and blending of the Chemical is a highly specialized process that requires utmost precision, an interal system of quality control is in placed at every level of material movement, from raw material to finished product. Normally it takes several days to get the finished product from the time of introduction of raw material, blending process, drying process, and eventually getting a final product. A few additional days may be needed for labeling and packaging. The powder or the tablets are then shipped to the customer.

Since each order is customized to meet the special needs of it customers, Glasgow uses a job-ordering system. Recently, Glasgow received a request for a 400 kilogram order of the Chemical. The customer offered to pay $8.50 per kilogram. Upon receivin the request and the customer's specification, Gloria White, the cost accountant, requested a load sheet from the company's chemist. The load sheet prepared showed the following material requirements.

Material Amount Required

Aspartic acid 260.00kg

CItric acid 20.00

K2C03 (50%) 162.50

Rice 40.00

Gloria also received past jobs that were similar to the requested order and found that the expected direct labor time was 20 hours. The production workers at Glasgow earn an average of $6.00 per hour plus $5.50 per hour for insurance and additional benefits.

Purchasing sent Gloria a list of prices for the materials needed for the job.

Material Material Price per Kilogram

Aspartic acid $5.25

Citric acid 2.10

K2CO3 (50%). 4.34

Rice 0.46

Overhead is applied using a company wide rate based on the direct labor cost. The for the current period is 120 percent of direct labor cost.

Whenever a customer requests a bid, Glasgow usually estimates the manufacturing costs of the job and then adds a markup of 25 prcent. This markup varies depending on the competition and general economic conditions. Currently, the industry is thriving and Glasgow is operating at capacity.

The following is required:

1. Analyze the data and calculate the expected total cost and cost per unit of producing 400 kilogram of the Chemical. Should Glasgow accept the price offered by the perspective customer? Why or why not?

2. SUppose Glasgow and perspective customer agree on a price of cost (as calcuated under item 1) plis 25 percent. What is the gross prodfit that Glasgow expects to earn of the job?

3. Suppose lkthat the actual costs of producing 400 kg of the Chemical were as follows:

Direct material Aspartic acid $1,460.00

CItric acid $. 40.00

K2CO3 $ 769.00

Rice $. 17.50

Total material costs. $2286.50

DIrect labor $250.00

Overhead $270.50

What is the actual cost per-unit cost? The bid price is based on expected costs. How much did Glasgow gain (or lose) because of the actual costs differing from the expected costs? Suggest some possible reasons why the actual costs differed from the projected costs.

4. Assume that the customer had agreed to pay actual manufacturing costs plus 25 percent. Suppose the actual costs are as described in Requirement 3 with one addition: an underapplied overhead variance is allocated to Cost of Goods Sold and spread across the jobs sold in proportion to their total cost (unadjusted cost of goods sold). Assume that the underapplied overhead cost added to the job in questions is $50.00. Upon seeing the addition of the underapplied overhead in the itemized bill, the customer calls nd complains about having to pay for Glasgow's inefficient use of overhead costs. If you were assigned to deal with this customer, what kind of response would you prepare? How would you explain and justify the addition of the underapplied overhead cost to the customer's bill? (Just explain this point, no calculations required).

PLEASE show all calculations as follows so that I can input into excel spreadsheet sheet:

1. Direct Materials costs Qty Price Toatl amount

Aspartic Acid 260 kg

Citric Acid 20 kg

K2CO3 (50%) 162.50 kg

Rice 40 kg

Direct Manfacturing labor 30 hours

Manufacturing overheads 120% of labor cost

Budgeted cost of producing 400 kg Total Per unit

Direct material costs

Direct Mfg Labor costs

Mfg Overhead

Total mfg cost

Mark up 25% of cost

Price for 400 kg

Since the customer has offered to purchase the chemical at $8.50, it is more than the estimated price $8.24 per kg. Glasgow can sell the Chemical to the perspective customer.

2. Sales Total Per unit

Less: cost of goods sold

Gross Profit

3. Actual cost of producing 400 kg   Total Per unit

Direct material costs

Direct Mfg Labor costs

Mfg Overhead

Mark up 25% of cost

Price for 400 kg

Gain or loss due to difference in budgeted cost and actual cost:

   Actual cost:

Budgeted cost

Difference

Appreciate your help on this one. Thanks.

Answer 1

1.

Expected total cost
Item	Qty		Price	Total
Direct material
Aspartic Acid	260	Kg	5.25	1365.00
Citric Acid	20	Kg	2.10	42.00
K2CO3 (50%)	162.5	Kg	4.34	705.25
Rice	40	Kg	0.46	18.40
Total direct material				2130.65
Direct labor	20	Hrs	11.50	230.00
Manufacturing overhead	120%	direct labor		276.00
Total Cost				2636.65
Budgeted cost of producting 400 kg
		Total	Per unit
Direct material		2130.65	5.33
Direct labor		230.00	0.58
Manufacturing overhead		276.00	0.69
Total manufacturing cost		2636.65	6.59
Mark up 25% of cost		659.16	1.65
Price for 400 kg		3295.81	8.24
Since the customer has offered to purchase the chemical
@$8.50, it is more than cost of $8.24 per kg., Glasgow can sell
the chemical to the suctomer.

2.

		Per unit	Total
Sales		8.24	3296
Less: Cost of goods sold		6.59	2636
Gross profit		1.65	660

3.

Actual cost of producing 400 kg
		Total	Per unit
Direct material
Aspartic Acid		1460.00	3.65
Citric Acid		40.00	0.10
K2CO3 (50%)		769.00	1.92
Rice		17.50	0.04
Total direct material cost		2286.50	5.72
Direct labor		250.00	0.63
Manufacturing overhead		270.50	0.68
Total manufacturing cost		2807.00	7.02
Mark up - 25%		701.75	1.75
Price for 400 kg		3508.75	8.77
Gain or loss due to difference in budgeted cost
and actual cost
Actual cost		2807.00
Budgeted cost		2636.65
Loss		170.35