Each plaque has a brass plate engraved with the name of the participant. Engraving requires approximately 30 minutes per name. Improperly engraved names must be redone. The plate is screwed to a walnut backboard. This assembly takes approximately 15 minutes per unit. Improper assembly must be redone using a new walnut backboard.
During the first half of the year, Raneri had two separate plaque orders. The job cost sheets for the two separate jobs indicated the following information:
Job 101 May 4
Cost per Unit Units Job Cost
Direct materials:
Wood $20/unit 40 units $ 800
Brass 15/unit 40 units 600
Engraving labor 20/hr. 20 hrs. 400
Assembly labor 30/hr. 10 hrs. 300
Factory overhead 10/hr. 30 hrs. 300
$2,400
Plaques shipped ÷ 40
Cost per plaque $ 60
Job 105 June 10
Cost per Unit Units Job Cost
Direct materials:
Wood $20/unit 34 units $ 680
Brass 15/unit 34 units 510
Engraving labor 20/hr. 17 hrs. 340
Assembly labor 30/hr. 8.5 hrs. 255
Factory overhead 10/hr. 25.5 hrs. 255
$2,040
Plaques shipped ÷ 30
Cost per plaque $ 68
a. Why did the cost per plaque increase from $60 to $68?
b. What improvements would you recommend for Raneri Trophies Inc.?
Answer:
a. The first item to note is that the cost did not go up due to any increases in the cost of labor or materials. Rather, the cost of the plaques increased because Job 105 used more labor and materials per unit than did Job 101. Specifically, Job 101 required exactly the same number of backboards and brass plates as the number of actual plaques shipped. However, Job 105 required four more backboards and brass plates than the number actually shipped (34 vs. 30).
This is illustrated as follows:
Job 101:
Materials
Walnut plaques:
Actual units used 40 units
Expected units needed to produce 40 plaques 40 units
Difference 0 units
Brass plates:
Actual units used 40 units
Expected units needed to produce 40 plaques 40 units
Difference 0 units
Labor
Engraving:
Actual labor hours used 20 hours
Expected labor hours to produce 40 plaques 20 hours
(40 units × 30 min. per unit)/60 min. per hour
Difference 0 hours
Assembly:
Actual labor hours used 10 hours
Expected labor hours to produce 40 plaques 10 hours
(40 units × 15 min. per unit)/60 min. per hour
Difference 0 hours
Job 105:
Materials
Walnut plaques:
Actual units used 34 units
Expected units needed to produce 30 plaques 30 units
Difference 4 units
Brass plates:
Actual units used 34 units
Expected units needed to produce 30 plaques 30 units
Difference 4 units
Labor
Engraving:
Actual labor hours used 17 hours
Expected labor hours to produce 30 plaques 15 hours
(30 units × 30 min. per unit)/60 min. per hour
Difference 2 hours
Assembly:
Actual labor hours used 8.5 hours
Expected labor hours to produce 30 plaques 7.5 hours
(30 units × 15 min. per unit)/60 min. per hour
Difference 1.0 hour
Job 105’s 25.5 labor hours are 3.0 more (25.5 hrs. – 22.5 hrs.) than should have been expected for a job of 30 plaques [(30 × 45 min.)/60 min. = 22.5 hrs.]. As a result, the additional hours of labor cost, applied factory overhead, and direct materials cost cause the unit cost of Job 105 to increase.
b. Apparently, the engraving and assembly work is becoming sloppy. Job 105 required 34 engraved brass plates in order to get 30 with acceptable quality. It is likely that the engraver is not being careful in correctly spelling the names. The names should be supplied to the engraver, using large typewritten fonts, so that it is easy to read the names. The engraver should be instructed to be careful in engraving the names. The assembly operation also needs some improvement. It took 34 assembly operations to properly assemble 30 plaques. It may be that the plates are assembled off-register (crooked) to the backboard. This could be improved by using a fixture to properly align the plate to the backboard. Alternatively, it’s possible misengraved plaques were assembled to backboards and needed to be disassembled, reengraved, and reassembled to new backboards.