Dean and Adriane

Printing
We Specialized in Wedding Announcements
 Group 1
Dean & Adriane

Overhead Assignment: Actual and Normal Activity Compared

Case – 4-66 pp. 210-211

Managerial Accounting ACCT- 6321

Professor – Bill Coats

 Honor Statement
“We affirm that we have not given or received any unauthorized help on this assignment, and tat this work is our own.” We accept responsibility for our

role in ensuring the integrity of the work submitted by the group in which We participated” Student honor council (2001).

Student honor council (2001) University of Maryland, “Promoting integrity, character and ethics.” [Available] at:

https://www.studentconduct.umd.edu/honor-pledge
 Introduction
• Dean and Adriane printing company specialized in wedding announcements.

• Our company is currently working on three projects for Mrs. Lucky for delivery in May 7 th , June 7th and July 7th respectively .

• We bill our clients at actual cost plus 50% however, we offer our clients who are friends a 25% discount. In this case Mrs. Lucky will qualify for the

discount.

• Our accountant will be using actual job costing system to identify the costing for all three announcements in order to bill Mr. Lucky.
 Overview of Case 4-66

• Three Jobs has been assigned for costing and billing for Mrs. Lucky with a 25% discount.

• Job order production costing will be applied to all three jobs.

• Job 115 Job 116 Job 117

• Cost of direct materials $250.00 $250.00 $250.00

• Cost of direct labor $25.00 $25.00 $25.00

• Cost of overheads $200.00 $400.00 $400.00

• Total Cost $475.00 $675.00 $675.00

• Total Price $593.75 $843.75 $843.75

• Number of announcements 500 500 500

 Case 4-66 Question 1
1. How do you think Mrs. Lucky will feel when she receives the bill for the three sets of wedding announcements?

• We believe that Mr. Lucky would be confused without seeing the actual overhead summary costing for the job

• Actual Overhead cost relieved to be $20,000 each month

• Hours worked in May was 500 hours, however 250 hours were recorded for June and July
 Case 4-66 Question 2
1. Explain how the overhead cost were assigned to each job.
• Actual costing was used in this case. According to Mowen et al (2016), “Only actual cost of direct material, direct labor, and overhead are used to
determine unit cost,” P. 152.

• Job 115 Job 116 Job 117

• Actual Overhead cost $20,000 $20,000 $20,000

• Hours worked 500 500 500
• Actual rate $40 $80 $80
• Overhead hours x500 x500 x500
• Overhead Assigned $200 $400 $400
 Case 4-66 Question 3
1. Assume that the company average activity is 500 hours per month and that the company usually experiences overhead cost of $240,000 each year.

Can you recommend a better way to assign overhead costs to jobs? recompute the cost of each job and its price, given your method of overhead

cost assignment. Which method do you think is best? Why?

Let us use Normal costing to solve the above:

Predetermine rate= Estimated annual overhead = 240,000

Estimated Activity level (500x12)

Predetermined rate = $40.00 per hour

 Cost and Price for every job
Particulars Amount

Direct Material $250

Direct labor $25

Overhead cost (5x$40) = $200

Total Cost $475

Add 25% mark up $118.75

Price $593.75
 Normal Costing
• It is observed that when predetermine rate is used, it avoids the problem of production being non uniformed which is presented in the first two

requirements of the case.

• This method is more actual and gives a fairer costing results (Robert and Steven 2004)
 References
• Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger, (2016), “MANAGERIAL ACCOUNTING: The Cornerstone of Business Decision Making.”

7th ed pp. 1-899

• Robert S. Kaplan and Steven R. Anderson, (2004), “Time-Driven Activity-Based Costing,” Harvard Business Review

• Student honor council (2001) University of Maryland, “Promoting integrity, character and ethics.” [Available] at:

https://www.studentconduct.umd.edu/honor-pledge