Chapter 17, Problem 1DC

Hiebert Chocolate, Ltd. is located in Memphis. The company prepares gift boxes of chocolates for private parties and corporate promotions. Each order contains a selection of chocolates determined by the customer, and the box is designed to the customer’s specifications. Accordingly, Hiebert uses a job order costing system and allocates manufacturing overhead based on direct labor cost.

One of Hiebert’s largest customers is the Goforth and Leos law firm. This organization sends chocolates to its clients each Christmas and also provides them to employees at the firm’s gatherings. The law firm’s managing partner, Bob Goforth, placed the client gift order in September for 500 boxes of cream-filled dark chocolates. But Goforth and Leos did not place its December staff-party order until the last week of November. This order was for an additional 100 boxes of chocolates identical to the ones to be distributed to clients.

Hiebert budgeted the cost per box for the original 500-box order as follows:

Ben Hiebert, president of Hiebert Chocolate, Ltd., priced the order at $20 per box.

In the past few months, Hiebert has experienced cost increases for both dark chocolate and direct labor. All other costs have remained the same. Hiebert budgeted the cost per box for the second order as follows:

Requirements

1. 1. Do you agree with the cost analysis for the second order? Explain your answer.
2. 2. Should the two orders be accounted for as one job or two in Hiebert’s system?
3. 3. What sales price per box should Ben Hiebert set for the second order? What are the advantages and disadvantages of this sales price?