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MANAGING PROJECTS

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Projects represent nonroutine business activities that often have long-term strategic ramifications for a firm. In this chapter, we examined how projects differ from routine business activities and discussed the major phases of projects. We noted how environmental changes have resulted in increased attention being paid to projects and project management over the past decade. In the second half of the chapter, we introduced some basic tools that businesses can use when planning for and controlling projects. Both Gantt charts and network diagrams give managers a visual picture of how a project is going. Network diagrams have the added advantage of showing the precedence between activities, as well as the critical path(s). We wrapped up the chapter by showing how these concepts are embedded in inexpensive yet powerful software packages such as Microsoft Project. If you want to learn more about project management, we encourage you to take a look at the Web site for the Proj...
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Job Order Costing

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CONCEPTUAL
Certain companies called job order manufacturers produce custom-made products for customers. These customized products are produced in response to a customer’s orders. A job order manufacturer produces products that usually are different and, typically, produced in low volumes. The production systems of job order companies are flexible and are not highly standardized.
In a job order costing system, the costs of producing each job are accumulated on a separate job cost sheet. Costs of direct materials, direct labor, and overhead applied are accumulated separately on the job cost sheet and then added to determine the total cost of a job. Job cost sheets for jobs in process, finished jobs, and jobs sold make up subsidiary records controlled by general ledger accounts.
ANALYTICAL
Job order costing can usefully be applied to a service setting. The resulting job cost estimate can then be used to help determine a price for services.
PROCEDURAL
Costs of direct materials flow to the Work in Process Inventory account and to job cost sheets. Costs of indirect materials flow to the Factory Overhead account and to the factory overhead subsidiary ledger. Receiving reports evidence the purchase of raw materials, and requisition forms evidence the use of materials in production.
Costs of direct labor flow to the Work in Process Inventory account and to job cost sheets. Costs of indirect labor flow to the Factory Overhead account and to the factory overhead subsidiary ledger. Time tickets document the use of labor.
Overhead costs are charged to jobs using a predetermined overhead rate. Actual overhead costs incurred are accumulated in the Factory Overhead account that controls the subsidiary factory overhead ledger.
At the end of each year, the Factory Overhead account usually has a residual debit (underapplied overhead) or credit (overapplied overhead) balance. Assuming the balance is not material, it is transferred to Cost of Goods Sold, and the Factory Overhead account is closed.
Guidance Answers to Decision Maker and Decision Ethics
Management  Consultant
Service companies (such as this consulting firm) do not recognize work in process inventory or finished goods inventory—an important difference between service and manufacturing companies. For the two jobs that are 60% complete, you could recognize revenues and costs at 60% of the total expected amounts. This means you could recognize revenue of $7,200 (0.60 × $12,000) and costs of $6,000 (0.60 × $10,000), yielding net income of $1,200 from each job.
Sales Manager
The price based on AdWorld’s normal pricing policy is $20,150 ($17,076 × 1.18), which is within the price range offered by competitors. One option is to apply normal pricing policy and quote a price of $20,150. On the other hand, assessing the competition, particularly in terms of their service quality and other benefits they might offer, would be useful. Although price is an input customers use to select suppliers, factors such as quality and timeliness (responsiveness) of suppliers are important. Accordingly, your price can reflect such factors.

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