# 16.7.1 Exercise: Job-Order Costing

### Intended learning outcomes: Calculate the cost accumulation for two products, given the material consumption as well as the standard time for the operations and the fixed and variable costs of two work centers. Explain the graphical representation of the cost accumulation.

Two products A and B are produced from material Z with a batch size of 40. Consumption is the same for each product: 50 g per product A or B. The cost of 1 kg of material Z is \$20.

For the sake of simplicity and comparison in our example, the manufactur­ing process is the same for products A and B: two operations (1 and 2) at two work centers (WC1 and WC2). The standard time for each operation is 1 hour per 40 units. Assume that setup time is negligible.

To calculate the costs of the manufacturing process, it is important to take into account the costs of the two work centers WC1 and WC2 in addition to the standard times. As Figure 16.7.1.1 shows, WC1 is more machine intensive, while WC2 is more employee intensive. The investments will be depreciated in 5 years, assuming 1000 productive hours per year. Further, assume that these costs make up the full manufacturing costs.

Fig. 16.7.1.1       Work center costs data.

Following the principle of job-order costing, determine the cost accumulation values for products A and B marked “?” in the tables in Figures 16.7.1.2 and 16.7.1.3 (compare Figure 16.2.2.1).

Fig. 16.7.1.2       Graphical representation of the cost accumulation for product A.

Fig. 16.7.1.3       Graphical representation of the cost accumulation for product B.

Hint: The full cost of goods manufactured will be the same for both product A and B (why?): \$4.75 per unit produced, or \$190 for a batch size of 40.