Let’s Manufacture An Experiential Teaching and Learning Opportunity by MaryElla Gainor Bryant University Smithfield, RI

Job Order Costing Objectives Provide an experiential learning opportunity by transforming the classroom into a manufacturing facility Accumulate cost related to manufacture of a product  Product cost vs. period cost  Direct cost vs. indirect cost  Fixed Cost vs. Variable Cost Understand indirect cost  Need for indirect resources i.e. Supervision, QC, R&M  Discuss alternative methods of indirect cost allocation Understand flow of goods and related effect on financial records  What triggers the physical flow of goods in a manufacturing facility  Related changes to financial records. Complete pricing calculations – target gross profit and markup on cost

Customer Order is Received !! Your company has received an order from a customer for 60 of these special tables. Your inventory control people need to think about ordering the raw materials necessary to complete the order. REQUIRED: 1.Calculate the Raw Materials Cost per Table. 2.Determine the Quantity of Tables that raw materials should be ordered for? 3.Determine the Total Cost of Raw Materials ordered? 4.Discuss the impact of the purchase of raw material on the financial statements.

Bill of Materials Order Materials!!

Bill of Materials Order Materials- example!!

Requisition Materials to Manufacturing Your labor group will requisition a work packet of materials to manufacture the product within your work group. DO NOT OPEN THE PACKETS UNTIL INSTRUCTED TO DO SO Each work packet contains enough materials to manufacture several tables. See Materials Requisition Form and understand Flow of Cost

Let’s manufacture! Your labor group is assigned to work on Job # 500. You will be manufacturing as many tables as you can in 3.0 minutes. As a direct labor person, you will report the hours worked on each job. (see Reporting Direct Labor Time – Example slide) Tables must be manufactured to customer specification. (see Customer Specification slide).

Reporting Direct Labor Hours – Example

Customer Specification Must be made to customer specification (product will be inspected prior to shipping to the customer) Colors may vary but color scheme must be pleasing to the eye (also subject to inspection) No component substitutions are allowed, ( for example, an 8-dot lego cannot be replaced by 2 4-dot lego) 9

Lets Inspect and Count How many units are completed? For each team, let’s count the number of acceptable tables. Let’s count the number of tables rejected and therefore scrapped. For your group, remember the number of tables completed and scrapped. REQUIRED: 1.Fill in the Direct Materials cost on the job cost sheet for all teams. (HINT: We know the number of tables completed, the number scrapped, and the raw material cost per table). 10

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How many DLH did it take? How many Direct labor Hours (DLH) did it take to complete these units? Convert minutes in the classroom to DLH (direct labor hours) in the factory. 1 minute = 100 DLH Each person 300 DLH (3 minutes * 100 DLH) REQUIRED: 1.Fill in the Direct Labor cost on the job cost sheet using a Direct labor Rate of $18.50/DLH. 2.Discuss how this raw materials cost and direct labor cost affect the financial statements. 14

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Determine Manufacturing Overhead (MOH) How can MOH be allocated to the Product? Information: 1.Table, Inc. allocates MOH to each job based on DLH. 2.Estimated MOH and estimated DLH are on the next slide. REQUIRED: 1.Calculate a Predetermined Overhead Rate (POHR). 2.Allocate MOH to Job # 500 and calculate total cost for this job to date. 3.Discuss how allocation of this MOH to job #500 affects the financial statements. 16

Estimated Manufacturing Overhead 17 POHR = Estimated MOH = ________________ = Estimated Base

Estimated Manufacturing Overhead 18 POHR = Estimated MOH = $2,763,600 = $29.40/DLH Estimated Base 94,000 DLH

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Determine Total Product Cost Completed tables are moved out of the factory because they are ready to ship. REQUIRED: 1.Summarize the Total Product Cost and calculate the Product cost/table. 2.Discuss how completion of these chairs affects the financial statements. 20

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Product Pricing How will the selling price be determined? REQUIRED: 1. Determine the sell price if it is based on a 35% markup on cost. sell price =$21,202 * 1.35 =$28, Determine the sell price if it is based on a 35% Targeted Gross Profit %. sell price =Cost/(1-GP%) =$21,202/(1-.35) =21,202/.65 =$32,618 3.Discuss the effect on the financial statements of selling the product. 35% mark-up on cost 35% gross profit Sales $28,623 $ 32,618 COGS -21, ,202 Gross Profit $ 7,421 $ 11,416 Gross Profit % 25.9% 35.0% 22

Job Order Costing Objectives Provide an experiential learning opportunity by transforming the classroom into a manufacturing facility Accumulate cost related to manufacture of a product  Product cost vs. period cost  Direct cost vs. indirect cost  Fixed Cost vs. Variable Cost Understand indirect cost  Need for indirect resources i.e. Supervision, QC, R&M  Discuss alternative methods of indirect cost allocation Understand flow of goods and related effect on financial records  What triggers the physical flow of goods in a manufacturing facility  Related changes to financial records. Complete pricing calculations – target gross profit and markup on cost