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.

1. 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.

2. 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 Décor 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 Décor 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 Décor now on using the traditional job-order costing system that