Zauner Ornaments -Costing and Pricing
Zauner Ornaments
Costing & Pricing
Introduction
Zauner Ornaments was a large manufacturer of crystal and glass products based in Vienna Austria. The company had an international reputation of producing high quality glass and crystal at affordable prices due to the skill of its master artisan and using innovative technology in the manufacturing process. Its product was used in fine restaurants, hotels and residencies around the world.
Due to slowing growth in the fine-crystal and glass-tableware markets, the organization has expanded into producing glass Christmas-tree ornaments to take advantage of its Crystal’s unique capabilities. The company leased a small manufacturing facility in Taiwan to produce small glass ball ornaments, large glass ball ornaments and specialty glass ball ornaments.
Yu, a new finance controller discovered that that sales department has set the prices of products according to competitors. Even though the company was profitable overall, it was not known if the prices set were sufficient to ensure that the individual product lines were profitable.
Chen, a senior analyst was tasked to perform an analysis of unit-product costs for each of Zauner’s three products. In the first analysis performed by Chen, the cost per box for each product was calculated using traditional volume-based costing system. Budgeted overhead was allocated to each product line based on the planned production of ornaments which resulted in small glass ornaments costing more that its selling price. In the second analysis, overhead was allocated to each product based on direct materials and direct labor that showed product costs less than current sales price.
However, it was noted that both analysis were not based on the basis of the factors that caused the cost to be incurred unlike Activity based Costing (ABC) that traces overhead costs directly to products, processes, services or customers and helps managers to make the right decisions regarding
Costing & Pricing
Introduction
Zauner Ornaments was a large manufacturer of crystal and glass products based in Vienna Austria. The company had an international reputation of producing high quality glass and crystal at affordable prices due to the skill of its master artisan and using innovative technology in the manufacturing process. Its product was used in fine restaurants, hotels and residencies around the world.
Due to slowing growth in the fine-crystal and glass-tableware markets, the organization has expanded into producing glass Christmas-tree ornaments to take advantage of its Crystal’s unique capabilities. The company leased a small manufacturing facility in Taiwan to produce small glass ball ornaments, large glass ball ornaments and specialty glass ball ornaments.
Yu, a new finance controller discovered that that sales department has set the prices of products according to competitors. Even though the company was profitable overall, it was not known if the prices set were sufficient to ensure that the individual product lines were profitable.
Chen, a senior analyst was tasked to perform an analysis of unit-product costs for each of Zauner’s three products. In the first analysis performed by Chen, the cost per box for each product was calculated using traditional volume-based costing system. Budgeted overhead was allocated to each product line based on the planned production of ornaments which resulted in small glass ornaments costing more that its selling price. In the second analysis, overhead was allocated to each product based on direct materials and direct labor that showed product costs less than current sales price.
However, it was noted that both analysis were not based on the basis of the factors that caused the cost to be incurred unlike Activity based Costing (ABC) that traces overhead costs directly to products, processes, services or customers and helps managers to make the right decisions regarding
References: 1- www.wikipedia.com 2- www.bized.ac.uk 3- www.wikipedia.com 4- U21 Global, 2004-2007- Performance Measurement and Control Systems; Segment -3, ABC method 5- U21 Global, 2004-2007- Performance Measurement and Control Systems; Segment -2, CVP 6- Williams, Haka, Bettner, Caecello “Financial and Managerial Accounting”, 14th edition