Finance Assignment: Job Order Costing, Income Statement Analysis

This assignment solution addresses job order costing, a method used to track costs for individual jobs or projects, particularly relevant for service firms. The assignment begins by identifying four types of service firms that utilize job order costing: manufacturing companies, law firms, medical service businesses, and film studios/retail companies. It then outlines the essential source documents required for setting up a job costing system, including material requisition slips, labor job tickets, and time cards. Finally, the solution presents a job order cost sheet with calculations for direct materials, direct labor, and applied overhead, alongside the status of various jobs. It concludes with an income statement for Okinawa Company, detailing sales, cost of goods sold, gross margin, administrative and marketing expenses, and net operating income, providing a comprehensive financial analysis. The assignment uses data from July 2017 and includes a bibliography of referenced sources.

By student name
Professor
University
Date: 28 August, 2017.

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Contents
Question no 1............…………………………………………………………………...2
Question no 2............…………………………………………………………………...3
Question no 3............…………………………………………………………………...4
Refrences.................………………………………………………………………........7
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Question 1
Four types of service firms that might use job order costing are-
Manufacturing Companies
In case of manufacturing companies, job order costing can be used to control the overall raw
material usage, allocation of the labour hour and the overall equipment use. In case of
manufacturing company, each order that a customer places is considered as a separate job by the
company.
Law firms
Several law firms and accounting firms can also use the job order costing. This white collar
business uses the same to maintain an individual account of the client. They consider the work of
each client as a separate job and the decisions are taken on the basis of the same.
Medical Services Businesses
Medical service businesses that includes of small hospitals and nursing homes, also uses these
kind of costing method, to consider the cost of each patient as a separate job. The overall billing
is done accordingly. However the overall process of maintaining the job orders of the patients
may be a complex method.
Film Studios/Retail Companies
In case of retail order business and film companies, they use the job order costing method to
track down the total cost of a particular sale, including the total sales size, and individual
demands. It helps in better analysis and interpretation of the overall cost that has been incurred.
Film studio related businesses can use this method to create separate job for each of the studios
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that they create. The maintenance of the overall records is also difficult in this kind of business
(Geiszler, Baker, & Lippitt, 2016).
Question 2
In case of setting up of a service firms that will use the method of job costing, following
points must be kept in mind.
The first document that is required will be a material requisition slip that is used in cases
where the company wants to issue certain raw materials from the factory. These slips must be
segregated on the basis of a particular job number. The following details are there on the
requisition slip like the department number, and the quantities and description of materials
requested, along with the job number. And the total cost of the materials that are issued is present
in the overall cost summary.
The other two types of document that are maintained are the labor job ticket and the time
card. The time cards are used by the employees, whenever they enter or leave the office premises
for whatever reasons. It helps in keeping an accurate record of the total number of hours worked
by the employees. The labor job tickets are used by the employees, in which they enter the job
done by them each day and the total hours they worked on that job. It helps the company in
keeping a trail on the total effective contribution of the employee in the production of the
company. These are the few source documents that will be required while setting up a service
firm that follows the method of job costing (Öker & Adıgüzel, 2016).
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Question 3:
a) Job order cost sheet
JOB 2106 JOB 2107 JOB 2108
Balance, 1st July 21310 6250 0
Direct material 10450 12300 16150
Direct labour 16000 12200 24000
Applied overhead 8000 (500*16) 4800 (300*16) 16000 (1000*16)
Balance, 31st July 55760 35550 56150
Status of various jobs
JOB 2102 JOB 2104 JOB 2106 JOB 2107 JOB 2108
STATUS OF
JOBS AT 31ST
JULY
Finished
goods and
sold
Finished
goods
Completed
and sold
Work in
process
Complete
b)
Work in process on 31st july 35550 (job 2107)
c)
Balance of finished goods on 1st July 49000 (job 2102 + job 2104)
Job 2106 55760
Job 2108 56150
Balance of finished goods on 31st July 160910
d)
Cost of goods sold Job 2102 & job 2106
25600 + 55760
= 81360
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e) Cost of sales = 81360 * 30% = 24408
Sales = 81360 + 24408 = 105768
Okinawa Company
Income statement for the month of 31st July
Sales 105768
Less: COGS (81360)
Gross margin 24408
Less:
Administrative expenses (4800)
Marketing expenses(fixed) (2000)
Marketing expenses (variable)* (5284)
Net operating income 12324
Variable marketing expenses = 5% of sales
= 105678 * 5%
= 5284
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Bibliography
Geiszler, M., Baker, K., & Lippitt, J. (2016). Variable Activity-Based Costing and Decision Making. Journal
of Corporate Accounting & Finance , 28 (5), 45-52.
Öker, F., & Adıgüzel, H. (2016). Time-Driven Activity-Based Costing: An Implementation in a
Manufacturing Company. Journal of Corporate Accounting & Finance , 27 (3), 39-56.
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