# Zauner Ornaments Case Analysis

Pages: 6 (1864 words) Published: January 24, 2013

Page 1 of 5

a. Ending inventory costs b. Direct labor costs

CASE ANALYSIS Using the traditional volume-based costing system, we have computed the maximum overhead cost per based unit using the formula: Maximum overhead cost per unit = Selling price unit – Prime costs per unit The computation is summarized on the table below: he Table 1 – Maximum overhead costs per product line Projected sales units Selling price per unit Prime costs per unit (DM+DL) (b) (c) \$ 9.00 \$ 4.00 \$ 11.00 \$ 5.00 \$ 17.00 \$ 7.00 Maximum overhead cost per unit (d) = (b) – (c) \$ 5.00 \$ 6.00 \$ 10.00 Maximum overhead costs (a) x (d) \$ 175,000 \$ 300,000 \$ 1,000,000 \$ 1,475,000 \$ 1,170,000 \$ 305,000

Product

(a) Small colored glass 35,000 Large colored glass 50,000 Specialty ornaments 100,000 Total maximum overhead cost Actual overhead cost Excess of maximum over actual overhead costs

As seen above, the computed maximum overhead cost is greater than the total actual overhead cost incurred by the Company. This shows that the selling price set by the Sales...