Project Costing: Job-Order Costing in Nonmanufacturing Organizations

Law Firm Job Direct Materials Direct Labor Overhead Each client Legal forms and similar inputs Time expended by attorneys Costs of secretaries, clerks, rent, depreciation and so forth Movie Studio Each film produced Costumes, props, film, etc. Actors, directors and extras Utilities, depreciation of equipment, wages of maintenance workers and so forth

Job-order costing is a versatile and widely used costing method that may be encountered in virtually any organization that provides diverse products or services.

Cost-accumulation system used in a service industry firm

Publicidades Paulista Makati City
Two managing partners having an annual salaries of P100,000 each Artistic staff of six people each earning P50,000 per year Fringe benefits for these professionals average 40 percent of their compensation So. . . . . . .

Publicidades Paulistas direct professional labor budget is. . .

Partner salaries .. P 200,000 Partner benefits (40%) .. 80,000 Total partner compensation P 280,000

Artistic staff salaries .. P 300,000 Artistic staff benefits (40%) .. 120,000 Total artistic staff compensation P 420,000

Ad agencys annual overhead budget

PUBLICIDADES PAULISTA Annual Overhead Budget For the Year 20xx 1st Quarter Support staff: Receptionist Secretarial Accounting Custodial Support staff benefits Artistic supplies Photographic supplies Office: Computer Photocopying Office supplies Postage Utilities: Electricity Heat/air conditioning Internet access Cable TV Telephone Trash collection Other Building rent Insurance Advertising Vehicle maintenance Depreciation: Equipment Vehicles Other Total overhead Php 2nd Quarter 3rd Quarter 4th Quarter Year

Support staff Artistic supplies Photographic supplies

32,000 70,000 40,000 29,000 68,400 160,000 120,000 20,000 15,000 18,000 2,100 13,000 16,000 1,500 2,000 3,100 2,400 2,500 50,000 15,000 20,000 4,000 12,000 20,000 20,000 Php 756,000

Php 8,000 17,500 10,000 7,250 17,100 40,000 30,000 5,000 3,750 4,500 525 3,250 4,000 375 500 775 600 625 12,500 3,750 5,000 1,000 3,000 5,000 5,000 189,000 Php

Php

8,000 17,500 10,000 7,250 17,100 40,000 30,000 5,000 3,750 4,500 525 3,250 4,000 375 500 775 600 625 12,500 3,750 5,000 1,000 3,000 5,000 5,000

Php 8,000 17,500 10,000 7,250 17,100 40,000 30,000 5,000 3,750 4,500 525 3,250 4,000 375 500 775 600 625 12,500 3,750 5,000 1,000 3,000 5,000 5,000 Php 189,000 Php

Php 8,000 Php 17,500 10,000 7,250 17,100 40,000 30,000 5,000 3,750 4,500 525 3,250 4,000 375 500 775 600 625 12,500 3,750 5,000 1,000 3,000 5,000 5,000 189,000

Office operation Utilities Building rent

Insurance
Advertising Vehicle maintenance Depreciation

189,000

Total overhead budget

Accountant estimates:
One-third of the budgeted overhead cost is incurred to support the ad agencys two partner Two-thirds of it goes to support the artistic staff

Budgeted annual partner support overhead Budgeted annual partner compensation

P756,000 x 1/3 90% P280,000

Budgeted annual artistic staff support overhead Budgeted annual artistic staff compensation

P756,000 x 2/3 120% P420,000

Budgeted annual partner support overhead Budgeted annual partner compensation Budgeted annual artistic staff support overhead Budgeted annual artistic staff compensation

P756,000 x 1/3

90%
P280,000 P756,000 x 2/3 120% P420,000

Interpretation: Overhead is assigned to each ad contract at the rate of 90 percent of partner direct professional labor plus 120 percent of artistic staff direct professional labor.

Application of Overhead

During May, Publicidades Paulista completed an advertising project for ice cream company, Selecta. Requirements of the contract: 1. P 1,800 direct material 2. P 1,200 partner direct professional labor 3. P 2,000 artistic staff direct professional labor

Computation of total cost of the contract

Contract MJH0207: Advertising Program For Selecta Direct material P 1,800 Direct professional labor (partner) .. 1,200 Direct professional labor (artistic staff) ... 2,000 Applied overhead: Partner support (P1,200 x 90%) 1,080 Artistic staff support (P2,000 x 120%) . 2,400 Total cost ..... P 8,480

Changing Technology in Manufacturing Operations

Three Technological Changes 1. Electronic Data Interchange (EDI) 2. Extensible Markup Language (XML) 3. Use of Bar Codes

Electronic Data Interchange (EDI)

Involves a network of computers linking organizations.

The direct exchange of data between organizations via a computer-to-computer interface. Allows companies to electronically exchange business documents and other information that extend into all areas of business activity from ordering raw materials to shipping completed goods.

Electronic Data Interchange (EDI) (continuation)

This eliminates. . . 1. The need for paper work. 2. Speeding up the flow of information. 3. Substantially reducing errors.

Extensible Markup Language (XML)

A recently developed alternative to EDI. A Web-based and less expensive to implement than EDI. Its purpose is to share structured data via the Internet.