Treasure Company

Devin Jasani

ACCT-442

Treasure Trophy Company

Case Analysis

Factors That Need To Be Considered Before Setting a Quote

1. Industry in which Treasure Trophy Company operates is highly competitive.

2. Are Sterling Yacht Club and Royal Golf Club regular and reliable clients?

3. What is the profit margin set by other competitors?

4. Has Business been growing or not?

5. What kind of costing system to use? Full costing or Direct costing?

6. Is the direct labor the correct cost driver?

Verifying Assignment of Direct Labor to various departments

As there are three departments involved in manufacturing trophies, we need to see if direct labor cost is assigned to these departments on the basis of wage rate of employees in these departments. When we calculate the direct labor to be assigned to different departments on the basis of wage rate in different departments we get the following cost allocation:

Departments | Wage rate | Calculation | Direct Labor Assigned |

Forming | 14 | 210,000*14/52.5 | 56,000 |

Finishing | 21 | 210,000*21/52.5 | 84,000 |

Assembly | 17.5 | 210,000*17.5/52.5 | 70,000 |

Total | 52.5 | | 210,000 |

So, the allocation showed in the case is correct. Looking at the nature of the product, direct labor is the best choice for a cost driver.

Allocation of Factory Overhead Costs (EXHIBIT 1)

Supervision: As there is a single supervisor for all three departments, we allocate this expense equally to three departments.

Factory rent: We allocate rent according to the square feet that a particular department occupies.

Depreciation on machinery: Allocation of depreciation is based on the horsepower that each machine uses. No depreciation is allocated to assembly department because all the work is done by hand.

Insurance on machinery: Same way as depreciation on machinery;

Repairs: We do not know the usage time of each machine. So, the next best cost driver for repairs is based on horsepower of each machine.

Supplies*: They are...