ACCT 2102
MANAGERIAL ACCOUNTING
Managerial Accounting, Tools for Decision Making, Fourth Edition (4th), by Jerry J. Weygandt, Donald E. Kieso, & Paul D. Kimmel (ISBN 978-0-470-11726-2)
Case for Management Decision Making
ACCT 2102 Case 1: Greetings Inc : Job Order Costing Solution
Click here for the SOLUTION
Greetings Inc. has operated for many years as a nationally recognized retailer of greeting cards and small gift items. It has 1,500 stores throughout the United States located in high-traffic malls.
As the stock price of many other companies soared, Greetings' stock price remained flat. As a result of a heated 2007 shareholders' meeting, the president of Greetings, Robert Burns, came under pressure from shareholders to grow Greetings' stock value. As a consequence of this pressure, in 2008 Mr. Burns called for a formal analysis of the company's options with regard to business opportunities.
AND SO ON...
The information in Illustration on the next page for unframed and framed prints was collected by the accounting and production teams. The manufacturing overhead budget is presented in Illustration CA 1-2
Illustration CA 1-1
Information about prints and framed items for Wall Décor
Illustration CA 1-2
Manufacturing overhead budget for Wall Décor
Exercises
Instructions
Use the information in the case and your reading from Chapters 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.
2 What are the advantages and disadvantages of using the cost of each print as a manufacturing overhead cost driver?
3 Using the information on the next page, compute and interpret the predetermined manufacturing overhead rate for Wall Décor.
4 Compute the product cost for the following three items.
(a) Lance Armstrong unframed print (base cost of print $12).
(b) John Elway print in steel frame, no mat (base cost of print $16).
(c) Lambeau Field print in wood frame with mat (base cost of print $20).
5
(a) How much of the total overhead cost is expected to be allocated to unframed prints?
(b) How much of the total overhead cost is expected to be allocated to steel framed prints?
(c) How much of the total overhead cost is expected to be allocated to wood framed prints?
(d) What percentage of the total overhead cost is expected to be allocated to unframed prints?
6 Do you think the amount of overhead allocated to the three product categories is reasonable? Relate your response to this question to your findings in previous
7 Anticipate business problems that may result from allocating manufacturing overhead based on the cost of the prints.
