CASE 1

Custom T-shirt Printing Business

1. What would be the major costs of your business? Classify the costs into the
areas of direct materials, direct labor, manufacturing overhead, selling and
administrative expenses
Firstly, here are the important factors that will affect the operations of the business:
We will use Direct-to-garment printing (DTG) for printing the custom made
designs
We will not rent for store because the t-shirt are made for orders
Social media will be used for advertisement and selling ( facebook and
Instagram) for cost cutting
The customer will pay for the delivery through LBC, but if the customer ordered in
bulk, we will be the one to deliver the product using the owners car.
Selling price will be affected by bulk orders of customers
The business will only have a single department which is the printing
department
The major costs of the business will be as follows:

Direct material
T-shirt
Ink for printer
Direct Labor
none ( owners will operate the business and the profit sharing will be the
compensation)
Factory overhead
Utilities
Food
Travel expenses
Selling and general administrative expenses
Cost of sponsoring custom printed t-shirt that will be given to famous
people for advertisement

2. Why would you need to determine the cost of providing your product or
service to individual customers? In other words, what type of decisions would
you expect to make based on job-order cost information?

Mainly, the major decision that will be made based on the JOC information is the

selling price or mark-up for the product.

It would also help us to decide whether we are efficiently operating the business
by seeing whether there are inefficient production, too much production, and too
much stock. However, the business wont be encountering these kinds of
problem because the t-shirts are made to order.

3.

In general, would you expect your companys indirect (overhead) costs to be

more or less than direct costs (DM and DL)? What allocation base do you think
you would use to charge overhead costs to individual customers? How much
do you think the overhead rate would need to be?

The companys indirect costs will be less than direct costs, because the indirect
costs would only be for the electricity for the printer, and the costs of sponsoring

t-shirts for famous people that will advertise the product.

The overhead cost is most closely tied to operating the printer. Thus, the

machine hours for the printer will be used as overhead base.

Assuming the electricity bill of the 5 printers is P12,000 a month and 8 hours a
day of usage, then the amount of predetermined overhead rate would be
P50/machine hour

4. Create a job cost sheet for a hypothetical average customer that includes
the estimates of the major costs of serving that customer. How much do you
think you would need to cover all costs plus provide a reasonable profit for
yourself?
ASSUMING:

The 1st year to 4th year students of College of Arts and Sciences ordered a batch
shirt for their respective batch. 199 shirts for 1 st year batch, 178 for 2nd year, 155
for 3rd year and 130 for 4th year.

JOB COST SHEET

JOB NO.

M12015

STARTING DATE

3/1/2015

ITEM

CUSTOM PRINT T-SHIRT

COMPLETION

3/15/2015

UNITS COMPLETED

662

DIRECT
MATERIAL
S

MANUFACTURING OVERHEAD

REQ. NO.

UNITS

AMT

TOTAL

HRS

RATE

AMT

M01

199

180

35820

120

50

6000

M02

178

180

32040

M03

155

180

27900

M04

130

180

23400

6000

119160

COST SUMMARY
DIRECT MATERIALS
MANUFACTURING OVERHEAD
TOTAL COST
UNITS COMPLETED
UNIT COST

UNITS DELIVERED
119160 DATE
6000 3/16/2015
125160
662
189.06

We intended to put a 125% mark-up on cost

UNITS

BALANCE

662

The cost of Selling and General administrative expenses are 12 t-shirts

selling price that were distributed to famous people for advertising

Now, this is the determined Income statement:
3DAC CLOTHING AND CO.
INCOME STATEMENT
FOR THE MONTH ENDED MARCH 31, 2015
SALES ( 662 units @ 236.3293)
COGS ( 662 units @ 189.0634)
GROSS PROFIT
OPERATING EXPENSES (12

PHP 156,450.00
(125,160.00)
31,290.00

units @ 236.3293)
NET INCOME BEFORE TAX
INCOME TAX (30%)
NET INCOME AFTER TAX

(2,835.95)
28,454.05
(8,536.21)
PHP 19,917.83

CASE 2
1. Complete the manufacture of Job 101.
Assuming: On February 10, 2015, Customer A ordered 300 Paper Hats and 120
Paper chains for her daughters 3rd birthday party to be delivered before February
25.

JOB COST SHEET

JOB NO.

PH46839

STARTING DATE

02/10/2015

ITEM

Paper Hats

COMPLETION

02/24/2015

UNITS COMPLETED
Requisition No.
RM083

Time Card No.

FE0012
FE0015

Activity Base

Direct Materials
Quantity
Unit Price
300
1.5

Hours
8
13

300

Cost
P 450
P 450.00

Direct Labor
Rate
P 50/ hour
P 50/ hour

Cost
P 400
650
P 1050.00

Manufacturing Overhead
Quantity
Application

Cost

Cost

Rate
Direct Labor

P 1050

250%

P 2625

Summary

Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost

P 450
1050
2625
P 4125.00

JOB COST SHEET

JOB NO.

PH46839

STARTING DATE

02/10/2015

ITEM

Paper Chains

COMPLETION

02/24/2015

UNITS COMPLETED

120

Requisition No.
RM083

Direct Materials
Quantity
Unit Price
250
1.5

Cost
P 375
P 375.00

Cost Summary

Time Card No.

FE0012
FE0015

Direct Materials
Direct Labor
Manufacturing Overhead
Direct Labor
Total
Cost
Hours
Rate
10
13

P 60/ hour
P 60/ hour

P 375
1380
2760
P 4515.00
Cost
P 600
780
P 1380.00

Activity Base

Manufacturing Overhead
Quantity
Application

Cost

Rate
Direct Labor

P 1380

200%

P 2760

2. Identify the major elements of the value chain for the Paper Products Factory.

Paper Hats

First, raw materials specifically colored paper tape and staple are

transferred from Warehouse stockroom to the Assembly department.

In Assembly department, colored paper are folded in to a cone shape,

taped and stapled.

Then, the assembled paper hats are transferred to the Finishing

department wherein the hats are decorated by 4 stickers.

Lastly, completed products are inspected for quality control purposes.

Paper Chains

First, colored papers are transferred from Warehouse stockroom to the Cutting

Department.
In Cutting Department, papers are cut in to strips and transferred to the Assembly
Department.
In Assembly Department, strips are linked, taped and stapled.
In Finishing Department, the paper chains are decorated by using stickers.
Lastly, completed products are inspected for quality control purposes.

3. Identify the various cost involved in making the products.

The following costs are necessary in making the products:

Cost of raw materials specifically colored paper, tape, staples, and

stickers.
Ordering cost and carrying cost of the raw materials.
Salaries of employees in assembly department.
Salaries of employees in finishing department.
Salaries of employees in General Manager.
Salaries of employees in Factory Supervisors.
Factory Utilities Expense.
Normal Spoilage charged to overhead

4. Separate the list of cost identified as product or period cost. Further classify
product cost as direct material, direct labor and manufacturing overhead.

Product 1: Paper Hats and Paper Chains

Product Cost

Period Cost

Direct

Direct

Manufacturing

Selling

Material

Labor

Overhead

Cost

Colored

Salaries

Paper

employees

of Stickers

Administrative
Cost

Advertising

Salaries

Cost

Administrative

in Assembly

officers

Department
Staples

Salaries

of

Employees
in

Sales

of

Department
Tape
Salaries

of

employees

in

Finishing
Department
Salaries

of

Factory General
Manager

and

Factory
Supervisor
Factory Utilities
Salary of factory
janitor