Question

Remnant Carpet Company sells and installs commercial carpeting for office buildings. Remnant Carpet Company uses a job order cost system. When a prospective customer asks for a price quote on a job, the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On October 1, Remnant Carpet Company gave Jackson Consulting an estimate of $ $3,430 to carpet the consulting firm’s newly leased office. The estimate was based on the following data:

Estimated direct materials:
40 sq. ft. at $35 per sq. ft.	$ 1,400
Estimated direct labor:
20 hours at $30 per hour	600
Estimated factory overhead (75% of direct labor cost)	450
Total estimated costs	$2,450
Markup (40% of production costs)	980
Total estimate	$3,430

On October 3, Jackson Consulting signed a purchase contract, and the delivery and installation was completed on October 10.

The related materials requisitions and time tickets are summarized as follows:

Materials Requisition No.	Description	Amount
112	20 sq. ft. at $35	$700
114	24 sq. ft. at $35	840

Time Ticket No.	Description	Amount
H10	10 hours at $30	$300
H11	14 hours at $30	420

Required:

Enter amounts as positive numbers.

1. Complete that portion of the job order cost sheet that would be prepared when the estimate is given to the customer.

2. Record the costs incurred, and complete the job order cost sheet.

JOB ORDER COST SHEET
Customer Jackson Consulting Date October 1 Date wanted October 10 Date completed October 10 Job. No. ESTIMATE
Direct Materials			Direct Labor			Summary
		Amount			Amount		Amount
40 sq. ft. at $35			20 Hours at $30			Direct Materials
						Direct Labor
						Factory Overhead
Total			Total			Total cost
ACTUAL
Direct Materials			Direct Labor			Summary
Mat. Req. No.	Description	Amount	Time Ticket No.	Description	Amount	Item	Amount
310	20 sq. ft. at $35		H10	10 Hours at $30		Direct Materials
						Direct Labor
312	24 sq. ft. at $35		H11	14 Hours at $30		Factory Overhead
Total			Total			Total Cost

Feedback

What is the best explanation for the variances between actual costs and estimated costs. (For this purpose, assume that 4 square feet of materials were spoiled, the factory overhead rate has been proved to be satisfactory, and an inexperienced employee performed the work.)

The direct materials cost exceeded the estimate by $140 because 4 square feet of materials were spoiled. The direct labor cost exceeded the estimate by $120 because an additional 4 hours of labor were used by an inexperienced employee. The factory overhead cost exceeded the estimate because an additional $90 of factory overhead was allocated because of the increase in direct labor.

Management didn't provide enough direction to complete tasks on budget.

The direct materials cost exceeded the estimate by $105 because 3 square feet of materials were spoiled.

The direct labor cost exceeded the estimate by $360 because an additional 4 hours of labor were used by an inexperienced employee.

Select the correct answer from the above choices.

Answer 1

JOB ORDER COST SHEET
ESTIMATE
Direct Materials			Direct Labor			Summary
		Amount			Amount		Amount
40 sq. ft. at $35		1400	20 Hours at $30		600	Direct Materials	1400
						Direct Labor	600
						Factory Overhead	450
Total		1400			600	Total cost	2450
ACTUAL
Direct Materials			Direct Labor			Summary
Mat. Req. No.	Description	Amount	Time Ticket No.	Description	Amount	Item	Amount
112	20 sq. ft. at $35	700	H10	10 Hours at $30	300	Direct Materials	1540
114	24 sq. ft. at $35	840	H11	14 Hours at $30	420	Direct Labor	720
						Factory Overhead	540
Total		1540	Total		720	Total cost	2800

The direct materials cost exceeded the estimate by $140 because 4 square feet of materials were spoiled. The direct labor cost exceeded the estimate by $120 because an additional 4 hours of labor were used by an inexperienced employee. The factory overhead cost exceeded the estimate because an additional $90 of factory overhead was allocated because of the increase in direct labor.