peruga engineering company specializes in designing automated characters and display 542828 | Homework Solutions

Job Order Costing in a Service Organization

Peruga Engineering Company specializes in designing automated characters and displays for theme parks. It uses cost-plus profit contracts, and its profit factor is 30 percent of total cost. Peruga uses a job order costing system to track the costs of developing each job. Costs are accumulated for three primary activities: bid and proposal, design, and prototype development. Current service overhead rates based on engineering hours are as follows: bid and proposal, $18 per hour; design, $22 per hour; and prototype development, $20 per hour. Supplies are treated as direct materials, traceable to each job. Peruga worked on three jobs, P-12, P-15, and P-19, during January, 2011. The following table shows the costs for those jobs:

Required

1. Using the format in the answer to requirement 1 of this chapter’s Review Problem, create the job order cost card for each of the three jobs.

2. Peruga completed Jobs P-12 and P-15, and the customers approved the prototype products. Customer A plans to produce 12 special characters using the design and specifications created by Job P-12. Customer B plans to make 18 displays from the design developed by Job P-15. What dollar amount will each customer use as the cost of design for each of those products (i.e., what is the product unit cost for Jobs P-12 and P-15)? (Round to the nearest dollar.)

3. What is the January ending balance of Peruga’s Contract in Process account for the three jobs?

4. Rank the jobs in order from most costly to least costly based on each job’s total cost. From the rankings of cost, what observations can you make?

5. Speculate on the price that Peruga should charge for such jobs.