Job Order Costing in Service Company
1. Job costing for services, The Hillman Company sells and services lawn mowers, snow blowers, and
other equipment. The service department uses a job order cost system to determine costs of each job,
such as oil changes, tune-ups, and repairs. The department assigns conversion costs through a cost
driver rate on the basic of direct labor hours. The cost driver rate additionally includes a markup of
25% on the job’s conversion costs in order to provide a reasonable profit for Hillman. The
customer’s invoice itemizes prices for parts and labor, where the stated labor rate is the
department’s cost driver rate that includes direct labor costs, assigned overhead costs, and the 25%
markup on conversion costs. Hillman Company’s service department estimated the following
information for 2006:
Salaries of mechanics
$120,000
Fringe benefits
54,000
General and administrative 18,000
Depreciation
42,000
Billable direct labor hours
4,500
a. Determine Hillman Company’s service department’s cost driver rate to be used to assign
conversion costs on the basis of billable direct labor hours.
b. Job 254 required $47.40 of materials and 0.7 direct labor hours. Determine the price charged for
job 254
(a)
Cost driver rate:
Salaries of mechanics
$120,000
Fringe benefits
54,000
General and administrative
18,000
Depreciation
42,000
Total conversion costs
$234,000
Billable hours
 4,500
Conversion cost per billable hour
$52.00
Markup
Cost driver rate
 1.25
$65.00 per DL
hr
(B) JOB 254:
Job 254
Materials
$47.40
Conversion cost plus markup: 0.7 DL hours  $65
Total price
45.50
$92.90
2. Job costing, The Leblanc Company employs a job order cost system to account for its costs. The
company has three production departments. Separate departmental cost driver rate are employed
because the demand for support activities for the three departments is very different. All jobs
generally pass through all three production departments. Data regarding the hourly direct labor
rates, cost driver rates, and three jobs on which work was done during June appear below. Job 101
and 102 were completed during June, which job 103 was not completed as of June 30. The costs
charged to jobs not completed at the end of a month are shown as work in process inventory at the
end of that month and at the beginning of the month:
Production departments Direct labor rate Cost driver rates
Department 1 $12 150% of direct material cost
Department 2 18 $8 per machine hour
Department 3 15 200% of direct labor cost
Beginning work in process
Direct materials:
Department 1
Department 2
Department 3
Direct labor hours
Department 1
Department 2
Department 3
Machine hours
Department 1
Department 2
Department 3
Job 101
$25,500
Job 102
$32,400
Job 103
$0
$40,000
3,000
0
$26,000
5,000
0
$58,000
14,000
0
500
200
1,500
400
250
1,800
300
350
2,500
0
1,200
150
0
1,500
300
0
2,700
200
a. Determine the total cost of completed job 101
b. Determine the total cost of completed job 102
c. determine the ending balance of work in process inventory for 103 as of June 30.
:
2.
Beginning Work in Process
Department 1
Job 102
Job 103
$25,500
$32,400
$0
Driver
Direct materials
Manufacturing support
Driver
$40,000
Direct labor a
b
400 DL hrs
4,800
300 DL hrs
3,600
$40,000 DM
60,000
$26,000 DM
39,000
$58,000 DM
87,000
Manufacturing support
Driver
$3,000
b
3,600
250 DL hrs
1200 mh
9,600
1500 mh
Driver
Manufacturing support
4,500
12,000
Driver
Direct materials
$0
b
Driver
$5,000
200 DL hrs
Department 3
a
$58,000
6,000
Direct materials
Direct labor
$26,000
Driver
a
Driver
500 DL hrs
Department 2
Direct labor
Job 101
$14,000
350 DL hrs
2700 mh
6,300
21,600
Driver
$0
$0
1500 DL hrs
22,500
1800 DL hrs
27,000
2500 DL hrs
37,500
$22,500 DL
45,000
$3,600 DL
54,000
$2,500 DL
75,000
Total Costs
a
Direct labor rates:
Department 1: $12 per DL hr
Department 2: $18 per DL hr
Department 3: $15 per DL hr
b
Manufacturing support rates:
Department 1: 150% of DM cost
Department 2: $8 per machine hr
Department 3: 200% of DL cost
$215,200
(a)
Total cost of completed Job 101  $215,200
(b)
Total cost of completed Job 102  $204,700
(c)
Work-in-process for Job 103 at April 30  $303,000
$204,700
$303,000