Sara\'s Chocolate, Ltd., is located in Madison. The company prepares gift boxes
ID: 2477325 • Letter: S
Question
Sara's Chocolate, Ltd., is located in Madison. The company prepares gift boxes of chocolate for private parties and promotions. Each order contains a selection of chocolates determined by the customer, and the box is designed to the customer's specifications. Accordingly, Sara uses a job order costing system and allocates manufacturing overhead based on direct labor cost. One of Sara's largest customers is a Gedes and Davis law firm. The law firm sends chocolates to their clients each Christmas and also provides them to the employees of the firm. The law firm's managing partner, Alan Gedes, placed the client gift order in September for 500 boxes of chocolates, but didn't place the order for the employee's gifts until the last week of November. This order was for an additional 100 boxes identical to the ones ordered for the clients. Sara calculated the cost per box for the original 500-box order as follows: In the past few months, Sara experienced price increases for both the chocolate and the direct labor. All other costs remained the same. Sara calculated the cost per box for the second order as follows: Requirements - Must show all calculations to support your numbers and your response must be typed. Do you agree with the cost analysis of the second order? Explain your answer. Should the two orders be accounted for as one job or two? Should the second order be billed at a higher price than the 1^st order? What are some advantages and disadvantages of this price?Explanation / Answer
Job order costing or job costing is a system for assigning manufacturing costs to an individual product or batches of products. Generally, the job order costing system is used only when the products manufactured are sufficiently different from each other.
Yes, since first order is given in September and second order is given after 3 months so during this period, prices are increased then it is justifiable to increase the cost.
The two order should be accounted as two job as 3 months has been passed.
Yes, second order should be billed at high prices.
Advantages: Recovery of increased cost
Disadvantage: It is one of the largest client and price discrimination between two order can lead to loss of its clients.
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