Carol Gorden was a good friend of yours in high school and is from your home tow
ID: 2353243 • Letter: C
Question
Carol Gorden was a good friend of yours in high school and is from your home town. While you chose to major in accounting when you both went away to college, she majored in marketing and management. You have recently been promoted to accounting manager for the Snack Foods Division of Koonce Enterprises, and your friend was promoted to regional sales manager for the same division of Koonce. Carol recently telephoned you. She explained that she was familiar with job cost sheets, which had been used by the Special Projects division where she had formerly worked. She was, however, very uncomfortable with the production cost reports prepared by your division. She emailed you a list of her particular questions:1. Since Koonce occasionally prepares snack foods for special orders in the Snack Foods Division, why don't we track costs of the orders separately?
Explanation / Answer
It is mainly because some overhead costs are difficult to split to each order as there is no suitable cost base to split the cost. Thus, is is better to compute based on the total cost instead of cost of the orders separately. Also, some costs are not incremental costs. Although there is special orders, the division may have excess capacity to work with the special order without increasing its fixed cost. Hope this helps!