Question

• Select one of the following types of businesses:
  • Custom home builder
  • Auto repair shop
  • Accounting firm
  • Lawn service company
  • Television show production

Describe how your chosen business might use Job Order Costing to account for its product(s) or service(s): What direct and indirect product costs would the company incur? Are these costs variable or fixed? What overhead allocation base would you suggest for the company to use? What typical period costs would you expect your chosen type of business to incur?

Answer 1

Answer is given below

Auto Repair shop is selected Job order costing is used when orders are driven by customer specification in the given case Auto repair of each vehicle may differ from one to another based on vehicle condition and customer requirement Hence each vehicle which come for repair there will separate job cost sheet to charge to customer direct product costs Vehicle parts labor engaged in directly repairing the vehicle indirect product costs Indirect material - oil, bolt, nuts etc Shop depreciation Shop rent Shop taxes Shop maintenance Utilities Direct product cost are variable in nature Indirect product cost are usually fixed in nature If indirect material / indirect labour is used it may vary with repairs done Utilities may also vary depending on whether it is used for repair services or not for example: Welding services, Overhead allocation base Overhead may be allocated on labor hour basis or machine hour basis ABC method of costing can also be used to allocate product cost accurately depending on cost activity drivers Facility level cost can be allocated based on labor hours Examples of activity drivers for allocating Unit-level, Batch -level or Product level activity costs Material handled Number of parts issued Time spent in repairing Period Cost Advertising cost for repair services Administrative salaries Admin Office depreciation