NNWOMA PRINTING COMPANY

It was Monday morning, and Victor Poku, president of PraiseJolin's Printing Company, was considering whether to take on a job at what seemed to him to be a marginal price. A half hour earlier, Katharine Owusu, president of Owusu Associates, had called to say she needed 10,000 copies of an advertising brochure by Friday noon. She gave Poku the specifications and said there had been so many delays in getting the copy ready that her regular printer did not have the capacity that week. She said he had previously agreed to do the work for GH700, and Poku could have the job at the same price. She needed an answer within an hour.

Pokus job estimator had converted the specifications to times for the main operations and produced the estimated cost shown in Exhibit 1. Material costs were computed and charged separately. Exhibits 2 and 3 show an abbreviated version of the annual budget plan and the overheated rate computation.

Three people worked in the lithography department, in which copy was converted to plates for the press. Poku knew that in this weeks job schedule were two big jobs to do regular customers who often prepared copy rather poorly, requiring the lithography people to spend extra time solving problems. Though he had done business with Owusu only twice in the previous year, each time the copy had been quite well prepared. Thus, as he saw it, the lithography department would probably have the capacity to handle Owusus job, but the problems with the two big jobs could change that. As an unwritten policy, Poku did not like to ask the lithography people to work overtime unless a real emergency arose.

If he took it, the job would run on one of the three smaller presses. Nnwoma also had a large press that was faster, had more capability, and was more complex to set up. On this Monday, the small presses were not fully schedule for the week.

The other two departments (cut and bind, and package and ship) probably had capacity because it was easier to run them overtime if necessary.

In a normal week, the presses would run three shifts around the clock for five days, the lithography department one shift, and the other departments one shift with occasional overtime.

Poku noted that business had been reasonably good of late. However, this coming week showed higher than normal unused capacity on the small presses, though like this Owusu job, work for those presses often came in at the last minute.

Exhibit 1

NNWOMA PRINTING COMPANY

COST ESTIMATE FOR OWUSU JOB

(In dollars expect for Direct Labor Hour)

Department	Direct Labor Hours	Direct Labor GH	Supplies GH	Overhead Rate GH	Overhead GH	Total GH
Lithography	2	30	40	30 per DLH	60	130
Press	4	80	15	80 per DLH	320	415
Cut and Bind	4	60	20	20 per DLH	80	160
Package and Ship	1	15	5	15 per DLH	15	45
	11	185	90		475	750
Administration and Selling						90
Total						840

Notes:

Overhead related to plant operations and the overhead rate was in dollars per direct labor hour. The overhead rate was set at the beginning of each year and was based on the relationship between the budgeted overhead assigned to the department and the budgeted direct labor hours for the department.

The largest items in the overhead cost pool were

• Employee benefits
• Depreciation on building and equipment
• Departmental supervision and plant administration
• Maintenance and engineering, including the computerized control on the large machine
• Utilities.

Corporate administration and selling expense amounted to about 10 percent of sales

Exhibit 2

NNWOMA PRINTING COMPANY

POKUS BUDGETED PLAN FOR THE YEAR

Sales	GH4,000,000
Cost of Sales:
Direct Labor	700,000
Supplies	400,000
Overhead	2,200,000
Total	GH 3,300,000
Administration and Selling	GH400,000
Total Expense	GH 3,700,000
Profit	GH 300,000