Natures Own Garden manufactures organic fruit preserves sold primarily through health food stores and on the Web. The company closes for two weeks each December to enable employees to spend time with their families over the holiday season. Natures Own Gardens manufacturing overhead is mostly straight-line depreciation on its plant and air-conditioning costs for keeping the berries cool during the summer months. The company uses direct labor hours as the manufacturing overhead allocation base. President Cynthia Ortega has just approved new accounting software and is telling controller Jack Strong about her decision:

I think this new software will be great, Ortega says. It will save you time in preparing all those reports.

Yes, and having so much more information just a click away will help us make better decisions and help control costs, replies Strong. We need to consider how we can use the new system to improve our business practices.

And I know just where to start, says Ortega. You complain each year about having to predict the weather months in advance for estimating air-conditioning costs to include in the calculation of the predetermined overhead allocation rate, when professional meteorologists cant even get tomorrows forecast right! I think we should calculate the predetermined overhead allocation rate on a monthly basis.

Controller Strong is not so sure this is a good idea.

Requirements

1. What are the advantages and disadvantages of Ortegas proposal? HINT: check out the the Predetermined overhead allocation rate first and think how Ortega's idea might affect the estimated rate which flows through the JOB Cost to JOB Finished Goods to COGS.

2. Should Natures Own Garden compute its predetermined overhead allocation rate on an annual basis or a monthly basis? Explain.