Question

PQB Inc. designs and fabricates movie props such as mock-ups of star fighters and cybernetic robots. The company's balance sheet as of January 1 , the beginning of the current year, appears below. Since each prop is a unique design and may require anything from a few hours to a month or more to complete, PQB uses a job-order costing system. Overhead in the fabrication shop is charged to props on the basis of direct labour cost. The company estimated that it would incur $80,000 in manufacturing overhead and $100,000 in direct labour cost during the year. The following transactions were recorded during the year: a. Raw materials, such as wood, paints, and metal sheeting, were purchased on account: $80,000. b. Raw materials were issued to production: $90,000 ( $5,000 of this amount was for indirect materials). c. Payroll costs were incurred and paid: direct labour, $120,000; indirect labour, $30,000; and selling and administrative salaries, $75,000 d. Fabrication shop utilities costs were incurred: $12,000. e. Depreciation was recorded for the year: $30,000 ( $5,000 on selling and administrative assets; $25,000 on fabrication shop assets). f. Prepaid insurance expired: $4,800 ( $4,000 related to fabrication shop operations, and $800 related to selling and administrative activities). g. Shipping expenses were incurred: $40,000. h. Other manufacturing overhead costs were incurred: $17,000 (credit Accounts Payable). i. Manufacturing overhead was applied to production. Overhead is applied on the basis of direct labour cost. j. Movie props that cost $310,000 to produce according to their job cost sheets were completed. k. Sales for the year totalled $450,000 and were all on account. The total cost to produce these movie props was $300,000 according to their job cost sheets. l. Collections on account from customers totalled $445,000. m. Payments on account to suppliers totalled $150,000.

Answer 1

PQB Inc.'s financial activities are framed within a job-order costing system that is influenced by changes in labor costs and manufacturing decisions, such as the choice between labor and machines for production efficiency.

Step-by-step explanation:

The transactions given for PQB Inc. reflect the financial activities of a company using a job-order costing system to track manufacturing costs and overhead related to the production of unique movie props. When firms face higher wage demands from unions or changes in labor costs, they can choose to shift towards using more physical capital and less labor to maintain or increase labor productivity, affecting the total production costs. The example provided with the home exercise cycle production plans represents how increases in wages from $16 to $20 per hour can alter the company's decision whether to employ more labor or invest in more machines. PQB Inc.'s year-end activities include purchasing of materials, payroll, incurring utility and depreciation costs, incurring manufacturing overhead costs, applying overhead to production, completing production of movie props, sales, collections from customers, and payments to suppliers.