Question

Vermillion Company is a job-order costing firm that uses activity-based costing to apply overhead to jobs. Vermillion worked on two jobs in June. Data are as follows:

Job 56 Job 55
Balance, 6/1 $32,000 $45,000
Direct materials 26,000 28,000
Direct labor 30,000 32,000
Engineering design 900 1,200
Purchasing 1,600 1,750
Other overhead 14,525 16,250
Which of the following would be true if Job 56 required no engineering hours?
a) Job 56's total cost would decrease.
b) Job 56's total cost would increase.
c) Job 56's total cost would remain the same.
d) Job 56's direct materials cost would decrease.

Answer 1

The total cost of (Option a) Job 56 would decrease if no engineering hours were required, as the cost allocated for engineering design would be removed from the job costing.

Step-by-step explanation:

If Job 56 required no engineering hours, its total cost would decrease. The cost associated with engineering design is an element of job costing. Since there are no engineering hours required for Job 56, the $900 allocated for engineering design would not be applied, thereby reducing the overhead. The costs for direct materials, direct labor, purchasing, and other overhead would remain the same, but the total cost would be less because the engineering cost would be omitted.