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 $3,850 to carpet the consulting firm’s newly leased office. The estimate was based on the following data:

Estimated direct materials:
40 meters at $32 per meter	$ 1,280
Estimated direct labor:
28 hours at $30 per hour	840
Estimated factory overhead (75% of direct labor cost)	630
Total estimated costs	$2,750
Markup (40% of production costs)	1,100
Total estimate	$3,850

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

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

Materials Requisition No.	Description	Amount
112	20 meters at $32	$640
114	24 meters at $32	768

Time Ticket No.	Description	Amount
H10	14 hours at $30	$420
H11	18 hours at $30	540

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 Meters at $32		$	28 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
112	20 Meters at $32	$	H10	14 Hours at $30	$	Direct Materials	$
						Direct Labor
114	24 Meters at $32		H11	18 Hours at $30		Factory Overhead
Total		$	Total		$	Total Cost	$

What is the best explanation for the variances between actual costs and estimated costs. (For this purpose, assume that the additional meters of material used in the job were spoiled, the factory overhead rate has proven to be satisfactory, and an inexperienced employee performed the work.)

The direct materials cost exceeded the estimate by $128 because 4 meters 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 $75 because 3 meters 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.

Select the correct answer from the above choices.

Answer 1

JOB ORDER COST SHEET
ESTIMATE
Direct Materials			Direct Labor			Summary
		Amount			Amount		Amount
40 Meters at $32		1280	28 Hours at $30		840	Direct Materials	1280
						Direct Labor	840
						Factory Overhead	630
Total		1280			840	Total cost	2750
ACTUAL
Direct Materials			Direct Labor			Summary
Mat. Req. No.	Description	Amount	Time Ticket No.	Description	Amount	Item	Amount
112	20 Meters at $32	640	H10	14 Hours at $30	420	Direct Materials	1408
114	24 Meters at $32	768	H11	18 Hours at $30	540	Direct Labor	960
						Factory Overhead	720
Total		1408	Total		960	Total cost	3088

a. The direct materials cost exceeded the estimate by $128 because 4 meters 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.