Cases for Management Decision Making
Case 1: Cases for Management Decision Making
Use the information in the case and your reading from Chapters 1 and of the text to answer each of the following questions.
Define and explain the meaning of a predetermined manufacturing overhead rate that is applied in a job-order costing system.
The predetermined overhead rate is base on the relationship between estimated annual overhead costs and expected annual operating activity, expressed in terms of common activity base. Common activity bases used in the calculation include direct labor costs, direct labor hours, machine hours or any other measure that will provide an equitable basis for applying overhead cost to jobs.
Estimated Annual Overhead Costs
= Preditermine Overhedrate
Expected Annual Operating Activity
Base on the case situation, Greetings Inc uses total expected cost of prints. This is because manufacturing overhead is allocated to each unframed or framed print, base on the assumption that more expensive prints will usually be framed and therefore more overhead costs should be assigned to these items.
What are the advantages and disadvantages of using the cost of each print as a manufacturing overhead cost driver?
Advantages
Easy to manage the job into individual specific jobs or departments
To allocate specific jobs or departments cost
Every department specialize in the same specific jobs
To determine separate units selling or production demand
Disadvantages
The cost will be expensive because it allocation to printing price, the higer cost of printing it will higher cost of manufacturing overhead
Need more space to store every different unit
The advantages of using the cost of each print as a manufacturing overhead driver is by using this method, Wall DĂ©cor can randomly estimate the exact amount of manufacturing overhead for the accounting period because the calculation of manufacturing overhead on this method are depends on the order from customer for that accounting period. As a result, Wall DĂ©cor can randomly know how many material that must been use for the next month based on the customer order from the previous month. The another advantages are Wall DĂ©cor now on using the traditional job-order costing system that