Zauner Ornaments Case Analysis

1900 Words Jan 27th, 2013 8 Pages
Introduction
Businesses – from manufacturing, merchandising and service industries alike – take careful considerations for their costing systems. Setting-up competitive prices in the market can be a result of proper costing methods. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods Zauner Ornaments are currently using and upon conclusion, it will enable us to distinguish the advantages and disadvantages of each costing method.

Case Context
The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs, in addition to
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the proper identification of the cost drivers in the allocation of factory overhead.

By resolving these issues, we can come up with a recommendation that will justify the Sales Department’s need to adjust the current selling prices of their products.

Framework for Analysis
We will examine the given data from the case and compare the unit costs from the company’s current costing system (traditional costing) and from activity-based costing. We will also highlight other qualitative data in consideration with the numerical factors that may result to a significant change on our recommendation.
Steps for analysis will be as follows: 1. Identification of activity cost drivers 2. Computation of per-unit data per cost driver 3. Comparison of per-unit plant administration costs considering each for computation: a. Ending inventory costs b. Direct labor costs
Case Analysis
First, we have identified if there is really an insufficiency in the amount of selling prices set by the Sales Department, in reference to Exhibit 1 of the case. We did this through identifying the maximum amount of overhead costs that the company can incur for the three products and comparing it with the total overhead costs. See Table 1 for details.

Table 1 – Maximum overhead costs per product line Product | Projected sales units(a) | Selling price per unit(b) | Prime costs

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