Custom fabric ventures: An instructional resource in job costing for the introductory managerial accounting course

J. of Acc. Ed. 31 (2013) 400–429

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Educational Case

Custom fabric ventures: An instructional resourcein job costing for the introductory managerialaccounting course

0748-5751/$ - see front matter � 2013 Elsevier Ltd. All rights reserved.http://dx.doi.org/10.1016/j.jaccedu.2013.07.004

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Karen W. Braun ⇑Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, OH 44106-7235, USA

a r t i c l e i n f o a b s t r a c t

Article history:Available online 21 August 2013

Keywords:Job costingIntroductory managerial accountingActive learningInstructional resource

Job costing is a core foundational concept in the introductory man-agerial accounting course. The purpose of this instructionalresource (IR) is to provide a thorough hands-on, active learningresource that will allow introductory students to experience a fullset of accounting and management activities necessary to producea job and assign production costs to it. For example, the IR requiresstudents to analyze overhead costs, determine the optimal job size,schedule production, calculate the amount of materials to pur-chase, complete material requisitions, update raw materialsrecords, analyze labor time records, complete a job cost recordand address critical thinking questions. The IR was developed foruse in a ‘‘flipped classroom’’ in which students work under theguidance of the instructor, but could alternatively be assigned asan unsupervised out-of-class assignment or on-line project. Sincethe IR was specifically developed as a learning tool for novice intro-ductory managerial accounting students, adequate guidance is pro-vided throughout the activity. However, to add realism andchallenge students to think beyond the confines of simple mechan-ics, management and accounting issues are seeded throughout.Student feedback indicates that the IR not only helps studentslearn how a job costing system operates, but also helps studentsbecome aware of management decisions and accounting issuesthat impact the costs assigned to a job.

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K.W. Braun / J. of Acc. Ed. 31 (2013) 400–429 401

1. Introduction

The educational literature suggests that students often develop a deeper understanding of a topicthrough engaging in experiential learning activities (Bonwell & Eison, 1991; Brickner & Etter, 2008;Cottell & Millis, 1993; Francis, Mulder, & Stark, 1995; McCarthy, 2010; Prince, 2004). The AccountingEducation Change Commission (1990, p. 5) advised that students should be ‘‘active participants in thelearning process, not passive recipients of information’’ and recommended that ‘‘learning by doingshould be emphasized.’’ The abundance of cases in the accounting educational journals directed atupper-level and MBA students attest to the power of alternative learning mechanisms to both supple-ment and complement lecture-based knowledge delivery and homework-based practice. However,few cases are specifically developed for introductory accounting students, whose characteristics andneeds are often much more elementary than those of upper-level accounting and MBA students.The goal of this IR is to provide an experiential learning activity for introductory students in orderto deepen their understanding of a job costing system. In addition, the IR was designed to heightenstudents’ awareness of some management decisions and accounting issues that impact the costs as-signed to a job.

The remainder of this paper is organized as follows: The next section offers a brief review of theliterature, while the third section presents a summary of the assignment material provided to stu-dents. The fourth section contains teaching notes for the IR including learning objectives, a brief syn-opsis of the company scenario, point-by-point discussion of issues seeded in the IR, andimplementation guidance. The final sections of the paper provide student feedback data and conclud-ing remarks. The actual assignment material and suggested solutions are presented in Appendices Aand B, respectively. Readers may contact the author to obtain the assignment material and solutionsin pdf, Word, or Excel format.

2. Literature review

Job costing is a foundational concept in the introductory managerial accounting course. A review offifteen introductory managerial accounting textbooks1 indicates that an entire chapter is devoted tothis topic. Most often, coverage of this topic occurs early in the course. The widespread coverage andearly placement of the material suggests that most professors consider job costing to be a core conceptof the managerial accounting course. In addition, 25% of Part 1 of the CMA exam covers cost managementtopics, including job costing systems (Fuller, Hargadon, Lawson, & Smith, 2011). Thus, establishing ped-agogy for students to fully grasp job costing is not only desirable from the perspective of the academy,but also essential from the perspective of the practicing profession.

A review of the literature shows that relatively few case-style resources for introductory levelcourses have been published in the educational journals (Weinstein, 2005) outside of a two-part seriesin Issues in Accounting Education (November 2011 and February 2012) devoted specifically toward theintroductory accounting courses. Furthermore, reviews of the case literature revealed that none of thecases and instructional resources that have been published focus on the fundamentals of job costing,as opposed to the more advanced topic of activity based costing systems (see Apostolou, Hassell,Rebele, & Watson, 2010; Lipe, 2006; Watson, Apostolou, Hassell, & Webber, 2003; Watson, Apostolou,Hassell, & Webber, 2007; Weinstein, 2005).

Traditional cases, in their purest form, typically require students to possess a higher level of busi-ness and accounting knowledge in order to sort through complex, multi-faceted information setsseeded with ambiguity and select pieces of relevant information that do not necessarily contain a sin-gle correct solution (Libby, 1991). As a result of this complexity, cases are often too challenging and

1 Introductory level textbooks are usually titled as ‘‘Managerial Accounting’’ as opposed to upper-level ‘‘Cost Accounting’’textbooks. All managerial accounting textbooks listed on CourseSmart� that were published after 2010 were included in thereview: Braun & Tietz, 2013; Brewer, Garrison, & Noreen, 2013; Crosson & Needles, 2011; Davis & Davis, 2012; Edmonds, Olds, &Bor-Yi, 2011; Garrison, Noreen, & Brewer, 2012; Hilton, 2011; Jiambalvo, 2013; Maher, Stickney, & Weil, 2012; Mowen, Hansen, &Heitger, 2012; Noreen, Brewer, & Garrison, 2011; Sawyers, Jackson, & Jenkins, 2013; Warren, Reeve, & Duchac, 2012; Weygandt,Kimmel, & Kieso, 2012; Whitecotton, Libby, & Philips, 2011; Wild & Shaw, 2012.

402 K.W. Braun / J. of Acc. Ed. 31 (2013) 400–429

overwhelming for introductory level accounting students who still have not yet progressed to higherlevels of cognition (Anderson & Krathwohl, 2001; Wolcott, 2011; Wolcott, Baril, Cunningham, Ford-ham, & St. Pierre, 2002). However, Campbell and Lewis (1991) contend that simpler cases may benefitintroductory accounting students and Libby (1991, p.212) believes that using cases could have a sig-nificant effect on the principles-level curriculum.

Procedural guidance is often a key to helping introductory students successfully master a concept.As many introductory instructors will attest, students often complain that they ‘‘don’t know where tostart,’’ even with rather simplistic textbook exercises. Thus, providing more guidance than is typicallypresented in traditional cases may be a requisite simplifying feature of a case geared toward introduc-tory students. For example, Stuebs’ (2011) instructional resource on the time value of money, whichwas specifically developed for the first introductory accounting course, provides students with a se-quence of well-articulated steps to perform, including computations to execute and critical thinkingquestions to address. Likewise, the job costing IR presented in this paper provides students with direc-tional guidance and critical thinking questions.

The heavily non-accounting business major enrollment of the introductory accounting class wasalso taken into consideration in developing this IR. For these students, understanding the process bywhich the accounting system functions to generate cost information that will be relied upon for man-agement decisions is arguably more important than learning the associated journal entries that areoften the focus of textbook presentation. With respect to job costing, non-accounting business majorsshould be made aware of management decisions and accounting choices that can influence a job’s re-ported cost so that they do not underestimate or overestimate the veracity of the reported job costprior to using it as a basis for making business decisions.

3. Assignment material

The assignment material for this IR consists of the following:

1. A direction packet imbedded with 28 guided requirements. The requirements include proceduralsteps to perform, critical thinking questions to address, and journal entries to record.2 Thepacket also contains company information, a recent customer order, and engineering time and mate-rial requirements.

2. Supporting documents. Most of the documents contain minimal information and must be com-pleted by the students as part of the guided requirements. These documents include the following:schedule of budgeted costs, bill of materials, production schedule, two purchase orders, materialsrequisition, job cost record, and six raw materials records. Two additional documents contain infor-mation students will need, but do not require completion by students. These documents includelabor time records for the four employees who worked on the job and the inventory price listsfor the company’s two authorized suppliers.

The complete set of assignment material is provided in Appendix A and the suggested solution isprovided in Appendix B. In addition, both paper-based (pdf or Word) and Excel-based versions of theassignment material are available from the author. From a practical standpoint, the paper-based ver-sion of the assignment material does not require students to have access to computers, thus making iteasy to implement in class. On the other hand, the Excel-based version eliminates some of the manualcalculations by requiring students to program basic arithmetic operations in the appropriate cells oneach document. The Excel-based version also facilitates the use of the IR in online classes. From a the-oretical standpoint, both versions provide a mechanism for students to learn how job costing informa-tion is collected, measured, summarized, and recorded in the accounting system by requiring thatstudents perform these steps themselves, rather than pre-programming the software to transfer thenecessary information from one document (e.g., labor time records) to another (e.g., job cost record).

2 These journal entries can be eliminated from the IR at the professor’s discretion without disrupting the efficacy of theremaining components of the IR.


Regardless of whether the paper-based or Excel-based platform is used, the underlying process andflow of accounting information is the same. However, the IR does advise students that most companieswould use an electronic platform that automatically interfaces one document with another in order totransfer data in real time, eliminate tedious calculations, and prevent errors.

4. Teaching notes

This section of the paper contains the following information: overall goal and specific learningobjectives, company scenario, a discussion of the issues seeded in the IR, and implementationguidance.

4.1. Goal and learning objectives

The overall goal of this IR is to provide a means for introductory accounting students to experiencethe set of management and accounting activities underpinning a job costing system in order to deepentheir understanding of the process by which accounting costs are assigned to a job. In addition to help-ing students become more familiar with the source documents and flow of accounting information,the IR will help students become aware of management decisions and accounting issues that impactthe costs assigned to a job. More specifically, this IR is intended to help students learn to:

i. Determine an optimal batch size.ii. Schedule production based on customer requirements and available resources.

iii. Determine the optimal quantity of materials to purchase.iv. Apply a FIFO inventory flow assumption to the purchase and use of raw materials.v. Use material requisitions and labor time records to assign direct costs to a job.vi. Analyze overhead costs in order to calculate and apply a manufacturing overhead rate to a job.

vii. Determine the gross profit on the sale of units from a job.viii. Record all journal entries related to production of a job and sale of units from the job.

ix. Evaluate the impact of accounting choices, including the selection of an overhead allocationbase, inventory flow assumption, and estimated useful life of equipment, on the reported jobcost.

x. Develop strategic proposals for decreasing the cost of producing a job.

4.2. Company scenario

Custom Fabric Ventures is a small company that produces fabric-based wardrobe accessories (suchas handbags, scarves, and headbands) and home accessories (such as placemats, pillows, and windowtreatments). The company maintains a limited number of popular items in stock, but primarily pro-duces custom orders. Customers are able to choose from a wide selection of styles, sizes, and fabricsfor each type of product. Most of the company’s customers are small boutiques, home décor shops, andhome-decorators.

The sales staff of Custom Fabric Ventures has just received an order for seven Black and Whitehandbags from Katie’s Boutique. Due to its popularity, the Black and White Handbag (ModelBW14293) is normally a stock item. However, the handbag is currently out of stock. Rather than pro-ducing only enough units to fill Katie’s order, management would like to produce a job (Job 114) that islarge enough to fill Katie’s order and replenish stock. Students’ primary task is to determine the cost ofproducing Job 114 so that they can calculate the gross profit on the sale to Katie’s Boutique.

4.3. Issues imbedded in the instructional resource

A number of thought-provoking issues are imbedded in the IR to increase its realism and compelstudents to think beyond the confines of simple mechanics. Students are challenged to confront thefollowing issues often faced by managers that have a bearing on the reported job cost.


4.3.1. Determination of optimal job sizeStudents are not told how many units to produce in the job. Rather, students are required to cal-

culate the optimal batch size. Students are instructed that the quantity produced in the job needs to belarge enough to fill a new customer order and replenish stock to a level that is within management’sdesired range. Furthermore, the company can achieve economies of scale by layering the fabric andcutting the units in multiples of four. To arrive at the optimal batch size, students will need to considerthree factors: the engineering specifications, the customer’s order size, and the desired level of safetystock. This IR requirement compels students to acknowledge that batch size is a management decisionthat must often be determined with multiple goals in mind. The determined batch size will impact thelabor hours required, production scheduling, amount of materials to purchase, raw materials inven-tory balance, and ultimately the job and unit cost.

4.3.2. Determination of unit costSince the optimal job size is larger than the customer order, students must calculate the unit cost in

the job, and use the unit cost, rather than the cost of the entire job, when calculating the gross profiton the sale to Katie’s Boutique and recording the associated journal entries. To add further realism, theunit cost does not come out to an even dollar amount ($48.443). Students must contemplate how theywill handle the fraction of a cent when valuing Cost of Goods Sold for the customer order and the Fin-ished Goods Inventory remaining after the order has been filled.

4.3.3. Determination of manufacturing overhead rateStudents are given a partially completed list of budgeted costs for the year and must identify the

relevant manufacturing overhead costs before they can calculate the predetermined manufacturingoverhead rate. Furthermore, students must first calculate the estimated depreciation on productionequipment, based on its age, historical cost, and estimated useful life. This feature serves as a reviewof depreciation from the introductory financial accounting course. Later, students are asked to explainwhether the reported job cost would have differed had the equipment been three years older (atwhich point it would have been fully depreciated). As a result, students must consider how the esti-mated useful life of equipment used for depreciation purposes affects the reported job cost.

4.3.4. Determination of estimated manufacturing time and production schedulingStudents are required to determine (1) how many hours the job should take to produce, and (2) the

days it could be scheduled in the plant given a no-overtime policy and limited availability of appro-priately-skilled workers. To do so, students must consider how batch size, labor availability, plantcapacity and the customer’s due date impact the timing of production. As a result, students beginto recognize that jobs don’t occur spontaneously, as they do in textbook exercises, but are the resultof production decisions that require careful consideration of a number of factors.

4.3.5. Determination of quantities to purchase and suppliers to useStudents must ascertain the quantity of materials to purchase by comparing the bill of materials to

the raw materials currently in stock. As a result, only limited quantities of certain materials need to bepurchased. This feature forces students to consider purchasing only the smallest amount needed,rather than tying up resources in unnecessary inventory buildup.

Once students have determined the quantity and types of materials to purchase, they must sourcethe needed materials from two authorized suppliers. The suppliers have similar pricing on some mate-rials, but different prices on others. Astute students will base their purchasing decisions on the low-cost supplier for each individual material; however, they are not directed to do so. Rather, students areasked to explain their purchasing decisions.

Furthermore, both suppliers require materials to be purchased in five-yard increments, rather thanthe actual quantities needed. This feature allows raw materials inventory to fluctuate before and aftermaterials are requisitioned for the job. Since scrap is an advanced managerial topic, the IR directlystates how management will use fabric remnants. Nonetheless, students are exposed to the realisticand practical issue of scrap.


4.3.6. Determination of cost of materials requisitioned for the jobThe company uses a perpetual inventory system and FIFO as its cost flow assumption. These issues

become pertinent when the purchased raw materials are received and then later requisitioned for thejob. A seeded price change on one of the direct materials compels students to account for the buildingand depletion of cost layers that occurs under a FIFO system. Furthermore, students are asked to deter-mine the balance for Raw Materials Inventory on the Balance Sheet. As a result, students form the con-nection between the set of individual raw materials records and the balance shown for raw materialsinventory on the financial statements.

4.3.7. Determination of direct labor cost and manufacturing overhead allocationStudents are given the labor time records for an entire week, not just for the job under consider-

ation. Upon due inspection, students will discover that the actual hours worked on the job differslightly from what was originally anticipated. Students must wrestle with which number of hoursto use (estimated or actual) when allocating manufacturing overhead to the job. Surprisingly, manystudents are baffled that there is a difference between the actual and estimated hours. As a result, thisissue can serve as a segue for discussing how management decisions and accounting figures are oftenimpacted by imperfect estimates. Although most introductory texts teach normal costing, this seededissue could also serve as a basis for introducing the concept of standard costing. Students are alsoasked to explain whether the amount of manufacturing overhead allocated to the job would have dif-fered had the company used direct labor cost, rather than direct labor hours, as its allocation base. En-ough data is provided early in the data set to allow students to calculate the cost differential.

4.4. Implementation guidance and alternative forms and uses

This section contains guidance on how the IR has been used by the author as well as suggestions foralternate uses. It also provides guidance regarding the amount of time required to prepare, complete,and grade the IR.

4.4.1. Class testingThis IR has been class-tested for nine semesters, resulting in slight modifications and improve-

ments each semester. Approximately 600 students have completed different versions of the IR, in clas-ses ranging from 20 to 36 students, at a fairly selective, private, mid-size university. Students enrolledin the course consisted of the traditional age group for undergraduate students and included approx-imately 20% non-domestic students. Students worked in self-selected pairs and completed most of theIR, except the journal entries, during a 75-minute class period. Students were given a week outside ofclass to complete any unfinished requirements. The advantage of administering the IR during class isto give novice students direct access to the instructor if they struggle with the issues imbedded in theIR. Using class time to complete the IR also potentially cuts down on the amount of plagiarism thatmight occur if the IR were assigned outside of class. Although the IR could be completed individually,working in teams of two allowed students to discuss and resolve the seeded issues with a partner, pro-viding a potentially more comfortable learning experience for the novice students.

Since job costing is covered early in the course, students completed this hands-on learning expe-rience just two weeks after the start of the semester. Up to that point, students had been introducedonly to the basic managerial accounting concepts and manufacturing costs typically described in thefirst and second chapters of most introductory managerial accounting textbooks. Since many intro-ductory students struggle with journal entries, a lecture on journal entries was provided after the stu-dents completed the majority of the IR, but before the IR, including journal entries, was due.3 Studentswere required to read the job costing section of the course textbook prior to coming to class the day theIR was used. To ensure compliance with the reading assignment, students were given a short pre-an-nounced quiz over the reading at the beginning of class.

3 As mentioned earlier, professors can delete the journal entry portion of the IR if so desired without reducing the IR’s efficacy onother learning objectives.


Once the quiz was completed, students paired up in teams of two, received the IR and began towork on it. The instructor spent the rest of the class period observing students and providing individ-ual assistance as questions arose. As intended, many teams wrestled with the issues seeded in the IR.These questions provided a good opportunity to discuss the issues and provide some guidance, whilestill allowing the teams to reach their own conclusions.

4.4.2. Alternative forms and usesThis IR was specifically developed as an active learning tool for use in the introductory managerial

accounting course. Instructors employing this IR may choose to use it as an ungraded classroom activ-ity, a graded project, or as part of a larger assessment plan. This IR embodies the type of active learningexperience that is needed and used by instructors who employ the pedagogical practice of ‘‘flippingthe classroom’’ whereby students watch lectures online or read assigned material prior to comingto class and then participate in hands-on activities during the normal class period. Others might wishto use it as a graded project performed after a lecture on the material. Since job costing is such a cen-tral element of the introductory managerial course, the IR could also become part of the feedback loopused to demonstrate assurance of learning for AACSB accreditation purposes. The Excel-based versionof the IR is also suitable for online courses.

Introductory courses at large universities are often taught in sizable lecture halls which, coupledwith large nebulous data sets, can be an impediment to using cases (Doran, Healy, McCutcheon, &O’Callaghan, 2011; Libby, 1991). However, because instructional guidance is provided directly inthe materials, this IR should also be suitable for a large lecture-hall environment. The issues seededin the IR will no doubt raise questions, as they were intended to do. To address this concern, instruc-tors may find it useful to (1) have several teaching assistants placed strategically throughout the ve-nue to help answer questions, or (2) interrupt the class at given time intervals (say every 20 minutes)to either take questions, or discuss some of the issues seeded in the IR.

Although the IR was developed for an introductory class, it could also be used in an upper-level costaccounting class. First, it could be used in its current form as a review of job costing. Second, it couldbe modified to be more traditionally case-like in nature by decreasing the amount of structure andguidance provided. For example, all of the company data and partially completed documents couldbe given to students at the beginning of the activity along with the general requirement to find thecost of producing the job. Rather than sequentially guiding students through the process and present-ing relevant information in a linear fashion, as is currently done in the IR, students would be requiredto discern the process for determining the job’s cost on their own. The critical thinking questions couldthen be addressed at the end of the activity. Third, since the job in the IR uses three productionactivities (cutting, sewing, and ironing) the IR could be modified to make use of departmental oractivity-based allocation rates rather than the single plant wide overhead rate. Finally, additionalcritical-thinking questions relevant to topics covered in later coursework or at more advanced levelscould also be added.

4.4.3. Time requirements for preparation, completion and gradingThe instructor will probably wish to spend one to two hours working through the IR before using it

in class for the first time. After the initial familiarization process, the preparation and disseminationtime and cost will be negligible. The paper-based version of the assignment material is self-containedin one electronic file which is available from the author in either Word or pdf format. The Word filewill enable instructors to amend the IR as they see fit. For example, they may wish to add, amend,or delete some of the critical thinking questions, based on the ability and experience level of their par-ticular students. It will also enable instructors to alter some of the cost data between sections of theclass or between semesters in order to reduce possible student plagiarism. The entire file can beprinted on plain white paper. Alternatively, the instructor may wish to print the supporting docu-ments presented in the final pages of the file (job cost record, raw materials records, labor time re-cords, and supplier lists) on different colored paper to make it easier for students to differentiatebetween the different pieces of information. The Excel version of the assignment material consistsof two files: (1) a Word file containing the directions packet and (2) an Excel file containing each ofthe documents on separate tabs. These two files can be posted on the course management system


to electronically disseminate the assignment material to students either in an online environment orbefore they come to class.

The time required by students to complete the IR will vary. In the author’s experience, most stu-dents are able to complete the majority of the IR, except for the journal entries, by the end of a 75 min-ute class period. Students rarely complete the entire IR in 75 minutes. Thus, the author gives studentsadditional time outside of class to complete any remaining requirements before turning it in. Instruc-tors who teach in 50 minute time blocks should plan on using two class periods for the project.

The time required by instructors to grade the IR will also vary depending on whether they use theIR as an ungraded experiential learning activity or use the IR as an assessment tool. Aside from thecritical thinking questions, the solutions to the IR’s requirements are fairly objective in nature. Thus,teaching assistants will be capable of grading most, if not all of the IR, using the supplied solutionswithout requiring much additional time from the instructor.

5. Results and discussion

The effectiveness of this IR has been identified through the use of student feedback collected at twodifferent points in time, depending on the semester it was collected: (1) immediate feedback uponstudent submission of the completed IR, and (2) intentionally delayed feedback collected at the endof the semester. To gain feedback while the project was fresh in their minds, students in the fallsemesters of 2010 (n = 52) and 2012 (n = 36) completed a survey about the perceived effectivenessof the IR as a learning mechanism the day they handed it in. Exhibit A presents the survey, along withthe mean ratings and the percentage of students who agreed or disagreed with each statement. Exhi-bit A contains responses for both classes combined (n = 88) since no significant differences were notedbetween classes.4

Exhibit A shows that overall, 96.6% of students agreed or strongly agreed that the IR was a usefullearning experience (mean score = 4.59). The feedback questionnaire also asked students to rate theeffectiveness of the IR in terms of more specific learning outcomes, such as the effectiveness of theIR in helping students understand how managers use source documents to determine the quantityof materials to purchase. The ratings on more specific statements were quite high, ranging from72.4% agreement (mean = 3.98) to 96.6% (mean = 4.51). The questionnaire also asked studentswhether they had any comments or any suggestions for improving the IR. Eighteen of the 88 studentsresponded to this question. Most of the student comments (15 of 18) were positive and similar in nat-ure to the following statement: ‘‘I think the case is very useful and helpful. We can understand what welearned from book better and it gives us a chance to think of solutions such as ways to reduce product costourselves. After this, I really have a clear mind of the job cost process.’’

Only three of the 18 responses raised criticisms. These criticisms included: disappointment withspending time outside of class to complete the project, working with a partner who did not help,and being required to complete journal entries. If desired, the instructor can eliminate these criticismsby allowing more class time for the IR, requiring students to work independently or grade their part-ner’s effort level, and eliminating the journal entry portion of the IR.

Rather than collecting immediate feedback about the IR from students when they turned in theproject, students in the spring semester of 2011 were asked to provide feedback at the end of thesemester, roughly 12 weeks after the IR was completed. This feedback is useful in assessing students’hindsight impression of the IR, nearly three months after it was completed. Students were simplyasked to ‘‘provide feedback’’ on the job costing IR, as well as two other projects and one pedagogicalfeature of the class. Student reactions to the job costing IR were overwhelmingly favorable. Of the 66student responses, 56 were positive, five were slightly negative, two had no comment, two said theydid not remember it, and one said s/he was ‘‘indifferent.’’ A representative selection of student com-ments is presented in Exhibit B. As indicated in the exhibit, three favorable themes emerged from thestudent comments: (1) students felt that the IR improved their understanding of how the entire jobcosting system operates, from beginning to completion, (2) students felt this project helped them

4 One additional question (Question 13) was added to the Fall 2012 survey that was not present on the Fall 2010 survey.

Please complete the following survey to indicate how effective the Job Costing Project was in helping you learn about job costing. Your answers will remain anonymous and will only be used to evaluate and report on the effectiveness of the case as an instructional resource.

Please use the following scale to rate your responses:

1 = Strongly Disagree 2= Disagree 3 = Neutral 4= Agree 5= Strongly Agree

Statement MeanRating

Percent Agree*

PercentDisagree**

1. This case helped me understand the basic documents used in a job costing system. 4.55 95.5% 0.0%2. This case helped me understand how managers schedule production. 4.28 87.7% 0.0%3. This case helped me understand how managers use the bill of materials and the raw materials inventory records to determine quantity of inventory to purchase. 4.51 95.5% 0.0%4. This case helped me understand how raw materials inventory records are updated (for both the purchase and use of raw materials) under a perpetual inventory system. 4.41 90.9% 0.0%5. This case helped me understand how direct materials are traced to a job. 4.42 94.3% 1.1%6. This case helped me understand how direct labor is traced to a job. 4.51 96.6% 0.0%7. This case helped me understand how manufacturing overhead is allocated to a job. 4.41 87.5% 2.3%8. This case helped me understand how job cost records are used as a basis for determining a job’s cost. 4.41 92.0% 1.1%9. This case helped me understand how manufacturers determine the gross profit on the sale of units from a job. 4.36 92.0% 0.0%10. This case helped me think about strategies managers might use to decrease job costs. 3.98 72.4% 3.4%11. This case helped me learn the journal entries used in a job costing system. 4.37 89.8% 0.0%12. Overall, I found the case to be a useful learning experience. 4.59 96.6% 1.1%13. This case raised my awareness of management decisions and accounting issues that impact costs assigned to the job. (Asked Fall 2012 only; n = 36) 4.16 83.3% 2.7%*The percentage of students who rated the statement with either a 4 or 5.

**The percentage of students who rated the statement with either a 1 or 2.

Exhibit A. Student Feedback Questionnaire (Fall 2010 and 2012, n = 88).


bridge textbook concepts to a ‘‘real-life’’ business application, and (3) students enjoyed learningthrough a hands-on, interactive approach. The five slightly negative comments centered on the IRbeing difficult, time-consuming, or unfairly graded. Thus, both the end of semester feedback and feed-back obtained from students immediately upon completing the IR were extremely positive.

As supplementary analysis, students in the spring semester of 2013 (n = 90) were administered adifferent feedback questionnaire on the day they handed in the project. The spring 2013 questionnaire,which is presented in Exhibit C, was geared towards examining student perceptions of how effectivethe IR was in helping them learn about job costing specifically with respect to analyzing or evaluatingseveral of the issues intentionally imbedded in the IR. As a comparative baseline to the questionnaire

“I enjoyed this project—I felt that it really developed my understanding of the material.”

Panel A- Representative Positive Comments: n = 56 of 66

“Was effective in teaching me how a company goes about building and costing a product in order to determine if they should build it how much to sell it for.”

“I think this project was helpful because it allowed us to see how products flowed through the production process.”

“Reinforced understanding about job costing on top of the class notes. Helped me learn through doing, not just hearing.”

“A great example on how to follow costs from the beginning materials to the final product.”

“I really liked the project because it let me use the information in a more realistic experience.”

“I enjoyed this activity. It allowed me to imagine how the process actually works in companies.”

“I liked this project because it was a ‘hands-on’ approach to figuring out the methods of how to do these processes.”

“Hands on project definitely helped more than writing it on paper.”

“This project was very fun and helped make the job costing materials more concrete.”

“Nice to work through the concept to understand it better.”

“I really liked the project. I think it really helped to see some of the things we learned applied to real life.”

“Interesting to see how to price items and where that comes from.”

“Hardest, maybe because it was the first project”

Panel B- Representative Negative Comments: n= 5 of 66

“Took a long time to complete”

“I got many points taken off for forgetting the last step. I don’t think I deserved a lower grade for forgetting one step.”

Exhibit B. Representative Sample of End-of-Semester Feedback (Spring 2011).


used in earlier semesters, students were still asked to rate the IR in terms of its overall usefulness as alearning experience (Exhibit C, question 13), just as they had been asked in the original feedbackinstrument (Exhibit A, question 12). An almost identical percentage of students (96.7% versus96.6%, respectively) agreed that the IR was a useful learning experience. Furthermore, 93.3% agreedthe IR deepened their understanding of the process by which accounting costs are assigned to a job

Please complete the following survey to indicate how effective the Job Costing Project was in helping you learn about job costing. Your answers will remain anonymous and will only be used to evaluate and report on the effectiveness of the project as an instructional resource. Please use the following scale to rate your responses.

1 = Strongly Disagree 2= Disagree 3 = Neutral 4= Agree 5= Strongly Agree

LEARNING OBJECTIVE MeanRating

Percent Agree

PercentDisagree

1. This case helped me learn to apply the basic job costing documents (bill of materials, labor time records, materials requisition, etc.,) in a job costing system to determine the cost of a job and the cost of each unit within the job. 4.48 97.8% 1.1%2. This case helped me become more familiar with the source documents and flow of accounting information in a job costing environment. 4.47 92.2% 2.2%3. This case helped me analyze inventory needs and production requirements to determine the optimal size of the job to be produced (number of units to produce in the job). 4.35 87.6% 1.1%4. This case helped me learn to analyze company costs in order to calculate the predetermined MOH rate. 4.52 94.4% 1.1%5. This case helped me learn to analyze manufacturing time requirements and batch size in order to schedule production. 4.26 88.8% 1.1%6. This case helped me learn to analyze raw materials requirements, current raw materials inventory levels, and supplier pricing to determine the quantity of materials that should be purchased from each supplier. 4.48 95.6% 2.2%7. This case helped me learn to apply a FIFO inventory flow assumption in a job costing environment. 4.03 72.2% 5.6%8. This case helped me analyze whether MOH allocated to the job is based on actual DL hours used by the job or DL estimated for the job prior to production. 4.32 86.7% 5.6%9. This case helped me evaluate the precision of the reported job cost, based on management decisions regarding inventory flow assumptions, allocation base, and life of the production equipment. 4.27 88.8% 3.4%10.This case helped me evaluate strategies managers might use to decrease job costs. 3.91 68.9% 5.6%11.This case helped me learn to apply the journal entries used in a job costing system. 4.38 91.1% 2.2%12. This case helped deepen my understanding of the process by which accounting costs are assigned to a job. 4.43 93.3% 1.1%13. Overall, I found the case to be a useful learning experience. 4.59 96.7% 1.1%14. On a scale of 1 to 10 (with 1 being extremely easy and 10 being extremely difficult), how challenging was this project? 5.56 N/A N/A

Exhibit C. Student Feedback Questionnaire—Supplementary Analysis (Spring 2013, n = 90).


and 97.8% agreed that the IR helped them learn to apply the basic job costing documents to determinethe cost of a job.

With respect to the individual issues intentionally imbedded in the case, over 86% of studentsagreed that the IR helped them learn to analyze or evaluate these concepts as part of the job costingprocess. Only two statements received lower than 86% agreement: learning to apply FIFO in a job cost-ing context (72.2%) and evaluating strategies managers might use to decrease job costs (68.9%). These


ratings are consistent with anecdotal observations that occurred while administering the IR: manystudents struggled with the application of FIFO and several students asked for help in thinking of waysto decrease job costs. Finally, the spring 2013 survey was also used to assess student perceptions ofhow challenging the IR was to complete. On a scale of 1 (extremely easy) to 10 (extremely difficult),the mean rating was 5.56, indicating a reasonable difficulty level for the introductory accountingstudent.

6. Conclusion

Job costing continues to be a mainstay topic in the introductory managerial accounting course.The overall goal of this IR is to provide instructors with an active learning tool that will deepenstudents’ understanding of the process by which accounting costs are assigned to a job and themanagement and accounting decisions that can impact those costs. Student feedback suggeststhat the overall goal, as well as more specific learning objectives related to the goal, weremet. Since the IR was specifically developed as a learning tool for novice introductory managerialaccounting students, adequate guidance is provided throughout the activity. To maintain a senseof realism and challenge students to think beyond simple mechanics, management and account-ing issues are seeded throughout. Thus, this IR provides instructors with an active-learning re-source to enhance and complement lecture-based knowledge delivery in the introductorymanagerial course.

Acknowledgements

The author would like to thank participants of the Case Western Reserve University brownbag sem-inar for their helpful comments. The author would also like to gratefully acknowledge the editor-in-chief (David E. Stout) and two anonymous reviewers for their insightful suggestions.

Appendix A. Assignment material

A.1. Table of contents

1. Direction packet containing 28 guided requirements2. Supporting documents:

a. Imbedded in the direction packet: Customer order form, schedule of budgeted costs, bill of mate-rials, production schedule, two purchase orders, and a materials requisition.

b. At the end of the direction packet: Job cost record, six raw materials records, four labor timerecords, and two authorized suppliers’ inventory price lists.

All assignment material is available from the author in pdf, Word or Excel format.Custom Fabric Ventures is a small company that produces fabric-based wardrobe accessories

(such as, handbags, scarves, and headbands) and home accessories (such as placemats, pillows, andwindow treatments). The company keeps a limited number of popular items in stock, but primarilyproduces custom orders. Customers are able to choose from a wide selection of styles, sizes, and fab-rics for each type of product. Most of the company’s customers are small boutiques, home décor shops,and home-decorators who serve clientele with discerning tastes. As a result, customers expect high-quality products.

The sales staff of Custom Fabric Ventures has just received the following order (Fig. 1):Due to its popularity, the Black and White Handbag (BW14293) is normally a stock item. However,

the handbag is currently out of stock. Rather than producing only enough units to fill Katie’s order,management would like to produce a job (Job 114) that is large enough to fill Katie’s order and replen-ish stock. The fabric used for this job can be stacked four layers deep for cutting, while still maintain-ing the quality and precision of the cut. Therefore, the company is able to realize some economies ofscale by producing the handbags in multiples of 4. Management would like to produce enough units in

Fig. 1. Customer order form.


this job to have a minimum of 30 and a maximum of 35 handbags left in stock after Katie’s order hasbeen filled.

Your primary task is to determine the cost of producing Job 114 so that you can calculate thegross profit on the sale to Katie’s Boutique. As part of this process, you will be required to scheduleproduction, purchase any raw materials that aren’t currently in stock, requisition materials for the job,and complete the job cost record. You will also be asked to consider relevant management andaccounting issues and record the transactions related to this job in the company’s accountingrecords.

The following step-by-step requirements will guide you through the entire job costing process.The documents you will encounter in this case are normally completed electronically rather thanmanually. In addition, these documents often interface with each other electronically in order totransfer data in real-time, eliminate tedious calculations, and prevent errors. However, theunderlying process is the same regardless of whether the company uses electronic or manualdocuments.

Req. 1: Before the year began, Custom Fabric Ventures estimated the following costs for the year(Fig. 2):

First, fill in the missing costs. Then, calculate the company’s predetermined manufacturingoverhead rate, assuming the company uses direct labor hours as its allocation base.

Req. 2: To realize maximum efficiency and meet management’s desired level of stock, how manyBlack & White handbags should be produced in Job 114?___________

Fig. 2. Company costs.


Req. 3: The production engineers have given you the materials requirements for each Black & Whitehandbag. Assume that no efficiencies in materials can be achieved by producing more than one unit perbatch. Complete the Bill of Materials for Job #114 found below. Be sure to include number of unitsbeing produced in the Job as well as the total quantity needed for each direct material (Fig. 3).

Req. 4: The production engineers have also given you the production labor requirements for each indi-vidual bag produced, assuming one bag is produced at a time:

Cutting time: 30 minutes per bag;Sewing time: 70 minutes per bag;Ironing time: 8 minutes per bag

Since each bag must be sewn and ironed individually, no sewing and ironing labor efficiencies canbe achieved by producing larger batch sizes. Recall, however, that fabric can be stacked for cuttingpurposes, such that the material for four bags can be cut in the same amount of time it would taketo cut one individual bag. Compute the estimated labor time requirement for producing Job 114.

TOTAL hours required for Job 114: _________

Req. 5: Use the estimated labor time requirement to schedule production of Job 114, includingthe start and end dates. Assume the plant will already be operating at full capacity every daywhile completing Jobs 111, 112, and 113. Also assume that only 4 direct laborers with the neededskill set will be available for this job. These hourly employees are only allowed to work a maximumof 8 hours per day so that the company can avoid paying overtime premiums (Fig. 4).

Req. 6: In addition to the direct materials shown on the Bill of Materials, what indirect materialsmight be used in the factory while Job 114 is being produced? List at least 2 items.

Req. 7: What types of production equipment will be needed for producing Job #114? List at least 5items.

Req. 8: Consult the Raw Materials records (see Figs. 8a through 8f) to determine the types andquantities of materials you currently have in stock. Determine which types of materials you need topurchase for Job 114 and how much of each you’ll need. List the materials that need to be pur-chased, along with the quantity of each needed:

Req. 9: Complete the purchase orders (supplier, date needed, item number, quantity, cost peryard, total cost, total for the whole order) assuming you are only buying what you need for thisjob, and no other jobs. Your purchasing agent will need to check with your authorized suppliers

Fig. 3. Bill of materials.

Fig. 4. Production schedule.

Fig. 5a. First of two purchase orders.

Fig. 5b. Second of two purchase orders.


(JoAnne Fabrics and Hancack Fabrics) to determine the current sales price of the materials (seeFigs.10a and 10b). No shipping is charged on purchases orders over $50. Note: Both suppliers onlyallow you to order in increments of 5 yards at time, so you may have to buy a little more than whatyou need. This is not a problem for your company, as it can always use large pieces of leftovermaterial for other jobs. Custom Fabric Ventures also has a standing contract with Mattel to pro-duce clothing for the Barbie and Ken line of dolls. Thus, small fabric remnants can always be usedfor the toy clothing line. Complete the purchase orders (Figs. 5a and 5b).

Briefly explain why you chose to purchase certain materials from each supplier:

Req. 10: Assume shipments of all supplies arrive on 10/9. Your receiving personnel have checked thereceipts against the Purchase Order and Invoice, and have noted no discrepancies in the ordered quan-tities or prices. Since the company keeps perpetual inventory records, update the Raw MaterialsRecords for the materials received and the new balance in stock (See Fig. 8a through 8f). Updateboth the physical quantities and costs. The company uses FIFO (first in, first out) as its inventoryflow assumption. If needed, keep track of separate inventory price layers.

Fig. 6. Materials requisition.


Req. 11: Assume for a moment that the Raw materials Records given to you represent a complete listof the raw materials carried by the company. If you were to look at the Balance Sheet at the close ofbusiness on Oct. 9, what balance would be shown for Raw Materials Inventory? (Show the totalbalance and how you arrived at it.) $__________________

Req. 12: The scheduled start date for the job has arrived. In order to begin production the materials forthe job are needed in the plant. Production would like to requisition all needed materials at one time.Complete the Materials Requisition (fill in the date, Job #, and quantity needed) so that the inven-tory storeroom personnel know the quantities and types of material to pick (Fig. 6).

Req. 13: The storeroom personnel correctly pick the direct materials and send them to produc-tion. Complete the cost information on the Materials Requisition above, assuming the companyuses FIFO as its inventory flow assumption.

Req. 14: Since the company uses a perpetual inventory system, what else would normally be doneat this point in time? If you were to look at the Balance Sheet at the end of the day, what balancewould be shown for Raw Materials Inventory? Calculate the total balance and show how you ar-rived at it. $_______________

Req. 15: Start a Job Cost Record for Job 114 (See Fig. 7). Record the direct materials used in the jobby recording the materials requisition number and the total cost of materials requisitioned.

Req. 16: Obtain the Labor Time Records (see Figs. 9a through 9d) for the week to determine how muchdirect labor cost to assign to Job 114. Record the direct labor used by the job by recording the labortime record numbers, hours worked, and total DL cost on the job cost record.

Req. 17: Calculate the amount of manufacturing overhead to allocate to Job 114. Show your cal-culations on the job cost record.

Req. 18: Complete the job cost record. Determine the total job cost as well as the cost of eachhandbag in the job.

Req. 19: The handbags have been moved out of the factory and into the finished goods warehouse toawait shipment. Before the handbags are completed, the job cost records served as a basis for

Fig. 7. Job cost record.

Fig. 8a. First of six raw materials records.


valuing which inventory account on the balance sheet? ______________________________. After thehandbags are completed, the job cost records serve as a basis for valuing which inventory ac-count? ____________________

Fig. 8b. Second of six raw materials records.

Fig. 8c. Third of six raw materials records.

Fig. 8d. Fourth of six raw materials records.

Fig. 8e. Fifth of six raw materials records.


Fig. 9a. First of four labor records.

Fig. 8f. Sixth of six raw materials records.

Fig. 9b. Second of four labor records.

Fig. 9c. Third of four labor records.


Fig. 9d. Fourth of four labor records.

Fig. 10a. First of two authorized suppliers.


Req. 20: The handbags ordered by Katie’s Boutique are shipped out on 10/14. Update the job cost re-cord. What is the new balance in Finished Goods Inventory for this item? ___________________

Req. 21: Calculate the gross profit on the sale to Katie’s Boutique:

Req. 22: Assume for a moment that Katie’s Boutique has found an overseas manufacturer that wouldcharge $45 per unit for the same handbag. Should Custom Fabric Ventures match the price of thiscompetitor? Briefly explain your answer.

Req. 23: Would the cost of Job 114, as reported on the job cost record, have been different had thecompany used LIFO or Weighted Average, rather than FIFO, as its inventory flow assumption? Ex-plain.

Req. 24: Would the cost of Job 114, as reported on the job cost record, have been different had thecompany used ‘‘direct labor cost’’ as the MOH allocation base, rather than ‘‘direct labor hours’’?

Fig. 10b. Second of two authorized suppliers.


Explain.

Req. 25: Would the cost of Job 114, as reported on the job cost record, have been different had thecompany’s production equipment been 6 years old, rather than 3 years old? Explain.

Req. 26: The budgeted data for the year did not include employment benefits, such as paid time off,company-paid health insurance, or company-sponsored retirement plans. From an accountingstandpoint, how should these costs be treated if they relate to selling and administrative person-nel? ______________________________ How should they be treated if they relate to plant personnel?______________________________Through what mechanism(s) might these costs be assigned to jobsif they relate to employees working in the plant?

Req. 27: As a manager, you always need to be thinking about how to decrease costs without sacrificingthe quality of your products and services. Generate three to five specific ideas this company couldpossibly implement for decreasing costs on similar jobs in the future. Note: General answers suchas ‘‘spend less on labor’’ or ‘‘be more efficient’’ will not count. You must generate specific, realisticand actionable recommendations managers could take to possibly decrease production costsrelated to similar jobs in the future.

Req. 28: Record the following journal entries associated with this case:

1. Record the purchases of raw materials.2. Record the use of direct materials on Job 114.3. Record the use of direct labor on Job 114.4. Record the allocation of manufacturing overhead to Job 114.5. Record the completion of Job 114 and its movement out of the factory.6. Record the sale of 7 units from Job 114 to Katie’s Boutique. Use a perpetual system.7. Record indirect labor which totaled $3500 for the month.8. Record the use of indirect materials which totaled $1500 for the month.


9. Assume the total amount of manufacturing overhead (MOH) incurred during the month was$25,450 and the total amount allocated to jobs during the month was $28,934. Was MOH overor under allocated? __________________________ Record the journal entry to close the MOH accountassuming the company closes MOH to Cost of Goods Sold (CGS).

Appendix B. Suggested solutions

Req. 1:

In table: Direct Labor = $480,000; Depreciation Expense = $140,000.Below table: $9.25/DL hour [(40,000 + 50,000 + 120,000 + 140,000 + 20,000) � 40,000 DL hrs].

Req.2:

40 handbags. Calculated as: Minimum = 37 (=30 + 7); Maximum = 42 (=35 + 7); The only multipleof 4 in this range is 40.

Req. 3:

Students should indicate 40 units in the job, as well as the following total quantities needed (Fig. 11).

Req. 4:

Cutting time: 300 minutes (30 min per bag � 40 = 1200 min � 4 = 300 min).Sewing time: 2800 minutes (70 min per bag � 40 = 2800 min).Ironing time: 320 minutes (8 min per bag � 40 = 320 min).TOTAL hours required for Job 114: 57 hours (3420 minutes � 60 minutes/hour).

Req. 5:

Job 114, with a quantity of 40 units, will start on 10/10 (since the factory is operating at full capacitythrough 10/9) and end on 10/11 (just under two days of production since the job will take 57 hoursand only 32 hours of the correct skilled workforce is available per day, with no overtime possible.)

Req. 6:

Machine lubricants, janitorial supplies, thread, pins, pressing cloth, etc.

Fig. 11. Solution to bill of materials.


Req. 7:

Many answers are possible. Based on the three activities listed, common answers may include thefollowing:Cutting equipment: e.g., scissors or rotary cutters, cutting board, measuring devices, templates.Sewing equipment: e.g., sewing machines, tables for machines, stools/chairs for operator.Ironing Equipment: e.g., iron, ironing board.

Req. 8:

BWFF = 14 yds; BW Check = 22 yds; BStrap = 70 yds; Int4 = 18 yds. These answers are found bycomparing the Bill of Materials with the Raw Materials Records and noting the difference.

Req. 9:

Given the 5 yard increment purchasing requirement, students who purchase from the supplierwith the cheapest price for each fabric would place the orders shown in Figs. 12a and 12b. (Theprice information is from the list of authorized suppliers.)

BWFF and BStrap were only available at one supplier; BWCheck and Int4 were cheaper at JoAnne’s.

Req. 10:

See updated Raw Materials Records shown on later page (Figs. 15a through 15f).

Fig. 12a. Solution to first of two purchase orders.

Fig. 12b. Solution to second of two purchase orders.

Fig. 13. Solution to materials requisition.


Req. 11:

$ 804.50 (Sum of balances in Raw Materials Records = $126 + 239 + 189 + 140 + 22.50 + 88).

Req. 12: (Date, Job #, and Quantity Needed) and

Req. 13 (Unit Cost and Total Cost) as shown in Fig. 13.

Req. 14:

Students should answer that the raw materials records should be updated at this time, althoughthey are not required to do so in this step (to save on time).Raw Materials Inventory balance = $117.50. The answer can be found in one of two ways:

� $804.50 balance before use – $687 used, or� Add the balance in the Raw materials records: $6 + $21 + $69 + 0 + $13.50 + $8.

Req. 15:

See completed heading and direct materials sections of job cost record (see Fig. 14). Direct mate-rials = $687 from materials requisition #6786.

Req. 16:

See completed direct labor section of job cost record (see Fig. 14). Total Direct labor = $742, calcu-lated as follows (data from the Labor Time Records):� Tyler David: 16 hours on Job 114, at a total direct labor cost of $160.� Eli Kunde: 14 hours on Job 114 at a total direct labor cost of $210.� Stephanie Berg: 13 hours on Job 114 at a total direct labor cost of $156.� Pam Berg: 12 hours on Job 114 at a total direct labor cost of $216.

Req. 17:

See completed manufacturing overhead section on job cost record (see Fig. 14). Manufacturingoverhead = $508.75 ($9.25/DL hour � 55 actual DL hours on time records).

Fig. 14. Solution to job cost record.


Req. 18:

See completed job cost record (see Fig. 14). Total job cost = $ 1937.75. With 40 units in the job, thecost per unit = $48.443.

Req. 19:

Before the handbags are completed, the job cost records served as a basis for valuing the Work inProcess Inventory account. After the handbags are completed, the job cost records serve as a basisfor valuing the Finished Goods Inventory account.

Fig. 15a. Solution to first of six raw materials records.

Fig. 15b. Solution to second of six raw materials records.

Fig. 15c. Solution to third of six raw materials records.

Fig. 15d. Solution to fourth of six raw materials records.

Fig. 15e. Solution to fifth of six raw materials records.


Fig. 15f. Solution to sixth of six raw materials records.


Req. 20:See lower section of completed job cost record (see Fig. 14). After shipment of customer order of 7units on 10/14, the new balance in Finished Goods Inventory for the remaining 33 units is $1598.52(33 units � $48.44) or $1598.85 (33 � $48.45) depending on what students do with the fraction ofa cent on individual units.

Req. 21:

Depending on how the student handles the fraction of a cent, the gross profit is:� Sales Revenue $525 (7 � $75) � CGS (7 � $48.44) = $185.92, or� Sales Revenue $525 (7 � $75) � CGS (7 � $48.45) = $185.85.

Req. 22:

The overseas supplier’s price ($45) is less that Custom Fabric Venture’s full cost ofproducing one unit ($48.443). Therefore, most students will conclude that the companycan NOT match the competitor’s price without incurring a loss. However, some astute studentsmay note that the direct costs (DM and DL) amount to $35.72 and that the remainderof the cost is attributable to an imprecise allocation of MOH, some of which is fixed and sunk(depreciation). Thus, some students may conclude that the company should match the competi-tor’s prices.

Req. 23:

Since the BWCheck fabric underwent a price change (from $8 per yard to $7 per yard) the inventoryflow assumption selected will impact the reported job cost. Had the company used either LIFO orweighted average, rather than FIFO, the DM cost of the job would have been slightly lower thanthat which was reported on the job cost record.

Req. 24:

Had the company used Direct Labor cost, rather than Direct Labor hours as an allocation base, thereported job cost would have been slightly higher as shown below:� The predeterminined MOH rate would have been 77.08% of DL cost ($370,000 of MOH/ $480,000 of

DL cost).� The amount of MOH allocated to the job would have been $571.93 (77.08% of $742) instead of

$508.75.


Req. 25:

The equipment was being depreciated over 5 years, so after 6 years it would have been fullydepreciated, resulting in $140,000 less of MOH cost, or $3.50 less MOH per DL hour($140,000 � 40,000 DL hrs). Since the job took 55 DL hours to produce, the reported total job costwould have been $192.50 less, or $4.81 less per handbag. Note: Students may also talk about equip-ment being less efficient because of its age, etc.

Req. 26:

� Employee benefits related to selling and administrative personnel should be treated as period costs,and expensed as operating expenses in the current period.� Employee benefits relating to plant personnel should be treated as product costs.� Mechanisms for assigning these costs to jobs include: 1) Treating these costs as MOH (whereby

they would be allocated to jobs), or 2) Tracing these costs to jobs as part of the DL cost (by calcu-lating each employee’s fully loaded wage rate).

Req. 27:

Many answers are possible. The goal is to encourage students to start thinking like managers whomust devise specific, actionable initiatives in order to control costs. This question provides a goodforum for introducing the ‘‘triple bottom line’’ (profit, people, planet) as well as discussing the neg-ative consequences that may arise from a myopic focus on short-run profitability. Some examplesare provided below for each manufacturing cost:� Possibly decrease the cost of DM by finding alternative, cheaper suppliers (since the company cur-

rently has only two authorized suppliers). Students also often suggest making the product smalleror decreasing the quality of the fabric in order to achieve cost savings. However, changing the prod-uct specifications in such a manner could decrease customer satisfaction and have long-term neg-ative consequences on future sales.� Possibly decrease the cost of DL by better scheduling of personnel. Some of the time Pam

Braun worked on the job at $18 per hour could have been shifted to Stephanie ($12/hr) orEli ($15/hr) since neither worked full days. Students also often suggest paying workers a lowerwage rate. However, decreasing the wage rate, even if possible and socially acceptable, couldhave a detrimental effect on employee motivation, retention, morale, and efficiency. Other stu-dents suggest better training of personnel in order to decrease the amount of production timerequired.� Possibly decrease the overall cost of MOH by investing in better technology, such as machines that

would allow more than four layers of fabric to be cut at the same time. Students also suggest usingenergy-saving technology (such as compact fluorescent factory lighting) to decrease energy relatedcosts.� Students tend to bring up the option of outsourcing production. While outsourcing often results in

reduced production costs, students should also consider the possible drawbacks and added costs tooutsourcing (shipping time, customs/duties, loss of control, fair labor practice concerns, affect onreputation, disposal of existing capacity, etc.). Rather than viewing outsourcing as a consistentlypreferable option, students should acknowledge that outsourcing may not be the best solutionfor a myriad of reasons.


Req. 28:

1
Raw Materials Inventory 485 A/P- JoAnne Fabric 395 OK if together as
A/P $485
A/P- Hancack Fabric 90
2
Work in Process Inventory 687 Raw Materials Inventory 687
3 Work in Process Inventory 742
Wages Payable 742
4
Work in Process Inventory 508.75 Manufacturing Overhead 508.75
5 Finished Goods Inventory 1937.75
Work in Process Inventory 1937.75
6
Accounts Receivable (7 � $75) 525 Sales Revenue 525
Cost of Goods Sold (7 � $ 48.44 or 7� $ 48.43)

339.15 or339.08

Finished Goods Inventory
339.15 or339.08
7 Manufacturing Overhead 3500
Wages Payable 3500
8
Manufacturing Overhead 1500 Raw Materials Inventory 1500
9
MOH was overallocated under theassumptions given. Manufacturing Overhead 3484
Cost of Goods Sold
3484
Raw Materials Records (Note: Students were only required to update the records for the amountof material received, but were not required to update the records for the amount of materials used (tosave time). Only the updates are shown, not the complete document.

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Custom fabric ventures: An instructional resource in job costing for the introductory managerial accounting course