Essay about Zauner Ornaments Case Analysis

1901 Words Jan 28th, 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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However, the costs per unit for the small colored glass ornaments were significantly higher with the other products using the volume-based costing system. This is due to the volume of units produced for the small colored glass ornaments compose much of the production cycle; it has the least selling price as well. Therefore, the selling price for the small glass ornaments is significantly lower.

Graph 1 – Share of Each Product in the Production Cycle

If we will consider the allocation of overhead costs based on prime costs as illustrated in Exhibit 2, it has to consider different qualitative factors: 1. All products use glass, and while we do not have an exact data on the amount of glass used for each unit of product, it is probable that the small glass ornaments may use the same amount of glass as the large glass ornament and the specialty ornament, therefore the same direct materials per unit. 2. Direct labor costs may differ; it requires more

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