Saint Paul School of Business and Law

Campetic, Palo, Leyte

COST ACCOUNTING
JOB ORDER COSTING SYSTEM

CASE ANALYSIS
The Golden Bridge Construction Company builds bridges. For the year 2014,
the firm starts to work exclusively on a bridge spanning the raging river in
Laoag, North of Ilocos. The job was named by the firm as Bridges of Love
Project. The firm builds structural elements of the bridges in temporary
plants located near the construction sites and operates at the bridge site and
assembles the structural elements. Estimated costs for the Bridges of Love
Project were P3.5 billion for direct materials, P3 billion for direct labor and P3
billion for overhead. Overhead is applied on the last day of each month.
Overhead application rate is 100% of direct labor cost. The contract related
to the construction of the bridge has provided an agreement that the
completion of the said undertaking must be on the second year from the
start of the construction. Further, the contract has provided a fixed contract
price of P15 billion.
The project manager and project accountants office as well as the electronic
data processing system that was exclusively designed to facilitate the
recording of all the financial transactions related to the Bridges of Love
Project were housed in the basement of the office located in the construction
site. On May 16, 2014, typhoon PANIRA caused the Laoag River to overflow
and flooded the offices basement. Electronic data storage was beyond
retrieval, and they had not provided off-site storage of data. Some of the
paper printouts were located but were badly faded and only partially legible.
On May 17, when the river subsided, company accountants were able to
assemble the following related data from the debris and from discussions
with various knowledgeable personnel. Data about the following accounts
were found:

A total of P300 million materials were purchased to begin building

structural elements. All of the materials issued to production was
considered direct. Based on the record kept by the Raw materials
custodian, the remaining amount of the purchased materials just
before the typhoon has arrived, was P50 million.
The site supervisor, based on his personal record, asserts that the total
direct and indirect labor costs incurred from January 2014 to present
amounted P300 million and P50 million respectively.
Payroll records, kept at an across-town service center that processes
the companys payroll showed that total factory labor cost paid as of
the period, ending May 15, 2014 is P365 million, of which 95%
represents direct labor cost.
Discussion with the site and project engineer indicated that a total of
P250 million structural elements were assembled for the period,
however due to the raging water, the structures were damaged. Based

on the combined expertise of the engineers and architects involved in

the project, theyve come up with a conclusion that the structural
elements can still be reworked at a total cost of P45 million. However
some of the parts of the latter structure with a total cost of P10 million
were deemed to be totally useless. It is a policy of the company not to
sell its scrap materials to preserve the confidentiality of the work they
performed for every project.

The Companys president asked Ms. Pa B. Bay, CPA, to perform an

independent examination of the related data gathered and to conduct her
own investigation to come up with the most reliable information regarding
the real status of the costs incurred for the Bridges of Love Project. Ms. Bay
asks for the record of the finance office related to the disbursements made in
conjunction with the ongoing project in Laoag. Examination of the files shows
that a total of P250 million were paid to the suppliers of the raw materials
and a check for the payment of the remaining unpaid invoices is being
processed with a total amount of P60 million.
The Company has no recoverable record that can accurately and reliably
show the actual overhead incurred for the period.
In addition, the president also asked Ms. Pa B. Bay, CPA to give her
professional advice regarding the Bridges of Love Project.

Each group should assume the task assigned to Ms. Pa B. Bay, CPA.

When I give you my TIME, Im giving you a portion of my life that I will never
get back. So please, dont make me regret it .
-Anonymous