YSL MARKETING

RESEARCH CASE STUDY

JOB ORDER COSTING

It is a system for assigning manufacturing costs
to an individual product or batches of products
and it is used only when the products
manufactured are customer specific and unique.
It is commonly used by both manufacturing and
service companies.
In job order costing, sum of direct material, direct
labour and manufacturing overheads constitute
cost of job.

ABOUT YSL RESEARCH FIRM:

Small Research firm located in Seattle, Washington.

Firm conducts opinions surveys, group meetings and

evaluates marketing strategies on behalf of its clients.

Organizational structure consists of 3 partners and 6

non-partner professionals.

JOB ORDER COSTING FOR SINGLE

ENGAGEMENT:

Company calculates actual cost incurred on a

particular job depending on following factors:
Direct

Costs:

Actual professional compensation to each engagement.

Direct Charges consisting of travel costs and costs for
conducting surveys.

Indirect

Costs:

It includes Overhead costs consisting of rent, utilities and

depreciation of office equipments etc.
Overhead allocation base is decided on the basis on
professional compensation charges.

EVALUATION OF PROFITABILITY IN
ENGAGEMENT:

Profitability is calculated by tracing actual

professional compensation to each engagement
along with direct charges and overhead charges.
Customer Billing Cost

= 1.5 x Professional Compensation + Reimbursements

Profit

= Customer Billing Cost Job Order Cost

ABOUT SURENEX:

A new high-tech company.

Hot small company with great potential in
future.
Dealing with cash-flow problems.
* looking for an opportunity of engagement with
a market research firm

JOB ORDER COST SHEET

Amount($)
Partners Cost

4,800

Professional staffs cost

4,000

Direct Charges

3,000

Overhead charges(0.31* x $8800)

2,728

Estimated Total Cost

14,528

*Predetermined overhead rate =

Total Estimated Overhead Cost
Total Estimated Professional Compensation
=

4,96,000
16,00,000

0.31

(B). WHAT IS THE LOWEST AMOUNT THAT

CONNIE CAN BILL ON THIS ENGAGEMENT
WITHOUT HURTING COMPANY PROFIT?
Amount($)
Partners Cost

4,800

Professional staffs cost

4,000

Direct Charges

3,000

Overhead Charges(0.50 x $8800)

4,400*

Estimated Total Cost

14,528

*YSLs fee is 1.5 times professional compensation which includes

partners and professional staffs costs.

(C). IN DECIDING A PIECE OF ENGAGEMENT,

WHAT SHOULD CONNIE CONSIDER IN ADDITION
TO THE AMOUNT CALCULATED IN (B) ?

Opportunity Cost should be considered because

YSL marketing Research is in high demand and
it had turned down another potential client i.e.
Profit from Potential Customer.
YSL may be better off in the long-run by setting a
relatively low priceon the current job. Even a
price that does not cover salaries and direct
chargescould be warranted if the prospect for
future profit, from working for Surenex, isvery
high.
Surenex may end up being a hot company with
premium billing opportunities.