The job costing system plays a significant role in decision-making. Job costing refers to the process of monitoring the manufacturing costs of a product in a company. Noteworthy, job costing is widely used in the production of customized products that often require the use of personalized materials and specialized labor. Through job costing, companies systematically allocate costs by the flow of materials resulting in the determination of product value and setting the selling price. Rose and Adler LLC’s job cost system allocates the estimate manufacturing cost per seat into direct materials, direct labor, and manufacturing overhead. Adler uses different cost systems for varying orders because of changes in the operational environment.
Undoubtedly, the cost analysis for the second-order is appropriate. Adler LLC operates in a continually changing environment, and it is essential to take into account all the factors influencing the production of the second order. Two factors influence the price of the second order. Foremost is the higher cost of raw materials; the price of dye has increased since the last order (Brewer, Garrison, & Noreen. 2015). Secondly is the rise in labor costs due to the high competition for experienced orders. Following this development, it is only logical for the company to raise direct materials and direct labor costs.
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Additionally, the two orders should be accounted for as two jobs due to several reasons. Although the same company placed the two orders, they were placed at different times of the years. Secondly is the changes in market costs between the two order placements; thus, different prices will be allocated to the orders. By accounting for the two orders differently, the company will get the right value for all the seats from the customer.
Since the two orders will be accounted for differently, the selling price for the second order is expected to be higher than that of the first order. First of all, it is vital to calculate the mark-up for the first order and use that value to calculate the cost of the second-order (Collier, 2015). The calculations are shown below:
First order
Total cost per seat $43
Selling cost $107.50
Markup percentage= (107.50-43)/43
=150 %
Second order
Total cost per seat $48.20
Selling cost= Cost * Mark-up + Cost
= (48.20*150%) + 48.20
= $120.5
Therefore, the selling cost per seat produced in the second order is $120.5.
References
Brewer, P. C., Garrison, R. H., & Noreen, E. W. (2015). Introduction to managerial accounting . McGraw-Hill Education.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making . John Wiley & Sons.
